China’s total borrowing is in ‘a league of its own’—worse and growing faster than U.S. debt, analyst says

(SeaPRwire) –   As President Donald Trump prepares to meet with Chinese leader Xi Jinping this week, China’s technological advancements will take center stage—but its state-driven growth model is slowing, and a rapidly growing mountain of debt serves as a major warning sign.

While the recent surge in U.S. federal debt has sparked widespread concern, a broader measure of total indebtedness across both public and private sectors actually shows that borrowing as a share of GDP has declined since 2010.

In contrast, China’s overall debt-to-GDP ratio—excluding the financial sector—has doubled over that period and now exceeds 300%, according to Mark Williams, chief Asia economist at Capital Economics.

In a note released late last month, he highlighted that China’s debt expansion has occurred despite a drop in household borrowing, which has been hit hard by the collapse of the real estate market.

However, corporate borrowing as well as spending by central and local governments has continued to grow far faster than GDP, especially as economic growth has slowed in recent years, pushing the national debt ratio higher.

Nearly 40% of outstanding debt is now held by the public sector, including so-called local government financing vehicles, Williams calculated.

This means China’s total debt surpasses that of the United States, the eurozone, the U.K., and other emerging markets. Only Japan has more debt, aside from some smaller economies.

“China’s current level of indebtedness puts it in a league of its own,” Williams said.

U.S. federal debt has also reached historic highs, now exceeding 100% of GDP for the first time since shortly after World War II.

Yet total public and private debt in the U.S. stood at about 265% of GDP last year, reflecting strong economic activity. It has also fallen sharply from pandemic-era peaks, when massive fiscal stimulus was deployed. Similar trends are seen in the eurozone and the U.K.

Beijing acknowledges the risks posed by its debt, particularly among local governments that frequently channel low-cost loans into favored industries such as artificial intelligence, electric vehicles, and robotics.

Over the weekend, officials pledged to intensify efforts to address local government debt risks through a restructuring program designed to help borrowers make payments on time.

They also called for preventing new hidden liabilities, strengthening the domestic economy, and advancing infrastructure development, Bloomberg reported, citing China Central Television.

But Chinese companies are taking on more debt than they generate in revenue. Corporate debt has doubled since 2019, while revenues have risen by only 30%, according to Capital Economics.

Creditors continue to extend loans to struggling firms just to keep them operating, even though nearly one-third of these businesses are losing money, Williams noted. This delays the reallocation of capital away from unproductive enterprises toward healthier ones.

China’s persistent overcapacity and policy support for manufacturers over consumers have fueled excess supply, which continues to push prices lower. An economy-wide price index shows China has experienced deflation for three consecutive years—the longest stretch since transitioning to a market economy in the late 1970s.

The central government has attempted to curb overproduction and excessive competition, but China’s reliance on export-led growth still encourages higher output levels.

Beyond the sheer scale of China’s debt relative to GDP, Williams emphasized the alarming pace at which it has grown, noting that the ratio has increased by more than 120% of GDP over the past 15 years.

Still, this does not necessarily mean China is on the verge of a financial crisis akin to the 2008 Lehman Brothers collapse. The system weathered severe stress during the property market downturn, he pointed out.

High domestic savings, strict capital controls, and the dominance of state-owned banks also reduce China’s vulnerability to external shocks.

Nevertheless, despite the government’s large role in sustaining the credit boom—which lowers immediate crisis risk—it is not supporting sustainable economic growth.

“The irony is that one driver of both government borrowing and the lenient lending standards of state-owned banks is the desire to sustain economic growth and avoid job losses,” Williams said. “But the result of an 18-year-long credit expansion is a banking system propping up inefficient firms, widespread industrial losses, and entrenched overcapacity.”