(Yicai) Nov. 12 -- Following the release of government debt figures last week, insiders and experts told Yicai that China’s debt risk is controllable, and large-scale borrowing can still be conducted if necessary.

China’s local governments had CNY14.3 trillion (USD2 trillion) of so-called hidden debt at the end of last year, and the national government’s debt ratio stood at 67.5 percent, exceeding the warning line of 60 percent, Finance Minister Lan Fo’an said at a press briefing on Nov. 8.

The European Union theoretically has a debt ceiling of 60 percent, but many countries in the bloc are way above that, according to Luo Zhiheng, chief economist at Yuekai Securities. The average debt-to-gross domestic product ratio in the Eurozone was about 92.5 percent in 2023, according to official EU data.

Luo also pointed out that Japan’s debt ratio is close to 250 percent, and that is not considered to be a significant problem.

Luo said China’s government has plentiful assets and resources, adding that current interest rates are low, leaving room for further borrowing if needed.

Lan also noted that based on an international comparison, the Chinese government’s debt ratio is significantly lower than those of other major economies and emerging market countries.

According to the International Monetary Fund, the average government debt ratio of Group of 20 countries at the end of 2023 was 118.2 percent, with the United States, India, France and the United Kingdom all having higher debt ratios than China.

Lan also said that China’s local government debts are mainly a result of capital expenditure, which supported the construction of a large number of transportation, water conservancy, and energy projects. These assets are generating sustainable income, and they not only provide strong support for high-quality economic development but are also important sources of debt repayment funds, he added. 

China launched a policy package on Nov. 8 to reduce the total amount of hidden debt to be absorbed by local governments from CNY14.3 trillion to CNY2.3 trillion (USD320 billion) by 2028.

It may prove necessary to reset the warning line on government debt, possibly to somewhere between 100 percent and 120 percent, Wang Qing, chief macro analyst at Golden Credit Rating, told Yicai.

Wang also said the new red line for local government debt ratios may be raised to around 190 percent or 200 percent, a significant increase from the current 120 percent. It would also be significantly higher than the 90 percent to 150 percent recommended by the IMF.

But Wang said the rising debt ratios are mainly the result of local government hidden debts being swapped out for explicit debts, not an increase in the actual scale of debt, so does not represent a change in the sustainability of China’s government debt.

Editor: Tom Litting