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Does China have more debt than the US?


China and the United States are the two largest economies in the world, and they also have the highest levels of debt. In recent years, China’s debt levels have been growing rapidly, leading some to speculate that China now has more total debt than the US. However, comparing the debt levels between the two countries is complicated by different measures and definitions of debt. This article will look at the key debt indicators for China and the US and analyze which country truly has more overall debt.

Comparing National Debt

One common measure of debt is national or public debt, which refers to debt owed by the national government. China discloses its public debt infrequently, but reported figures for 2021 indicate China’s public debt was around $8.7 trillion. The US national debt as of October 2022 stands at over $31 trillion, making it much higher than China’s on a nominal basis. However, when looking at debt-to-GDP ratios, which account for the size of the economy, China’s ratio is estimated around 50% while the US ratio is over 100%. So by this measure, China’s public debt burden is lower relative to the overall economy.

China’s National Debt

Total national debt (in trillion USD) 8.7
Debt-to-GDP ratio ~50%

United States National Debt

Total national debt (in trillion USD) 31
Debt-to-GDP ratio Over 100%

So in summary, China has less nominal national debt but a lower debt-to-GDP ratio, while the US has over 3.5 times more national debt overall but a higher debt ratio.

Total Non-Financial Debt

Another broader measure of debt is total non-financial debt, which includes all debt owed by governments, households, and corporations. By this measure, China’s total non-financial debt is estimated to have surpassed the US in recent years.

China’s Non-Financial Debt

Total non-financial debt (in trillion USD) ~55
Debt-to-GDP ratio Over 260%

United States Non-Financial Debt

Total non-financial debt (in trillion USD) ~52
Debt-to-GDP ratio Over 250%

China’s high corporate debt growth has pushed its total non-financial debt to an estimated $55 trillion by mid-2022, surpassing the US total of around $52 trillion. China also has a higher non-financial debt-to-GDP ratio at over 260%, compared to 250% for the US.

So by the broadest measure, China has now overtaken the US in total non-financial debt burden. However, the US still has significantly higher government debt levels.

Debt Composition Differences

It’s important to note that the composition of debt in China is very different from the US. In China, corporate debt makes up around two-thirds of total debt. In the US, government debt predominates, accounting for around 70% of the total non-financial debt.

China Debt Composition

Corporate debt 65-70% of total
Government debt 20-25% of total
Household debt 15-20% of total

United States Debt Composition

Government debt Over 70% of total
Corporate debt 15-20% of total
Household debt Around 15% of total

This has implications for financial stability. High corporate debt can pose risks to China’s financial system. Meanwhile, high government debt burdens future generations in the US. But government debt is generally safer than corporate debt.

Growth Rates of Debt

Another key factor is the growth rate of debt over time. Although China now has higher total non-financial debt, its debt has been growing at a much faster pace than in the US.

China Debt Growth

2000 total non-financial debt $4.6 trillion
Current total non-financial debt $55 trillion (estimated)
Average annual growth rate Over 15%

US Debt Growth

2000 total non-financial debt $26 trillion
Current total non-financial debt $52 trillion (estimated)
Average annual growth rate Around 4%

This very high pace of debt accumulation in China raises financial stability risks going forward. Even if China’s total debt is now higher, its debt was growing from a low base two decades ago. The US has maintained high debt levels over a longer period.

Foreign Debt Ownership

Foreign ownership of debt also differs significantly between China and the US.

Over 50% of US government debt is owned by foreign creditors, including central banks. This makes the US more reliant on foreign demand for its debt.

China’s debt is predominantly domestically owned, with under 10% of its debt held by foreign creditors. This gives China more control over its debt burden.

However, China’s capital controls and closed financial system also means it cannot rely on foreign demand to absorb its debt. The high domestic debt levels pose a risk within China’s financial system.

Concerns About Data Accuracy

When making China-US debt comparisons, the accuracy of China’s data also needs to be considered. China’s debt figures are less transparent than the US and there are concerns over omissions in official debt data.

Local government and state-owned enterprise debt levels in particular may be under-reported in China’s statistics. This means total debt could be even higher than officially indicated.

Conclusion

In summary, based on most measures China now has higher total non-financial debt than the US, largely driven by corporate debt. However, the US still has significantly higher government debt burdens.

China’s debt has also been growing at a much faster pace from a lower base decades ago. While China has more overall debt, the US has maintained high debt levels for longer.

The composition of debt also differs, with corporate debt predominating in China while government debt predominates in the US. This makes the debt vulnerabilities different between the two countries.

There are also concerns over the accuracy and transparency of China’s debt data. But by most indications, China looks to now have surpassed the US in terms of total non-financial debt. The sustainability of China’s massive debt growth remains a key uncertainty going forward.