Is Chinese Government Debt Pressure on the Decline?


A leading Chinese analyst has expressed optimism about Beijing’s ability to curb government debt pressure, claiming that figures from the Bank for International Settlements have overstated real levels of leverage.

Addressing the topic of government debt at a press conference held as part of China’s 13th National People’s Congress, finance minister Xiao Jie (肖捷) said that as of the end of 2017 the Chinese government debt balance was 29.95 trillion yuan.

Central government debt stood at 13.48 trillion yuan and local government debt was 16.48 trillion yuan, while the Chinese government macro leverage ratio, or its debt balance as a share of national GDP, was 36.2%.

According to Xiao this macro leverage ratio is far lower than the figure of around 45.7% produced by the Bank for International Settlements (BIS).

Xiao said that if BIS’s figures were accurate, then China’s government balance would be approximately 37.8 trillion yuan, or around 7.8 trillion yuan greater than Beijing’s official figure.

Zhang Tao (张 涛), a researcher with Evergrowing Bank, points out that BIS’s calculations of Chinese debt are based on three components – loans, bonds and cash and deposits, and believes that its assessment of cash and deposits is the source of the disparity  in figures.

“Cash and deposits in actuality are just money issued by the monetary authority, and by its nature is certainly a debt that the government bears with respect to other sectors of society,” writes Zhang in an article for the state-owned Securities Daily

“Because of its statutory and mandatory nature alone, money has no repayment obligation, and only requires that that its value be kept stable.

“Thus, BIS’s inclusion of ‘cash and deposits‘ in its calculations is rational in theory, but because there is no repayment obligation, there is reason to exclude it from calculations.”

As of the end of 2017 the “money issued” balance of China’s monetary authorities was 7.71 trillion yuan, roughly in line with the disparity between the figures released by Beijing and BIS.

Xiao Jie said that the Chinese government’s macro leverage ratio of 36.2% is well below the international benchmark of 60%, as well as below the average level for the world’s major economies.

Zhang Tao points out, however, that the Chinese government has recently faced considerable repayment pressure, given that debt repayments comprised a sizeable percentage of fiscal revenues.

In 2016 the Chinese government’s principal and interest payments were 7.75 trillion yuan, or 48.56% of as national general public budget revenues of 15.96 trillion yuan.

When state fund budget revenues of 6.15 trillion are included, then principal and interest payments comprise 35.05% of China’s fiscal revenues.

sees this repayment pressure declining given a drop in local government debt in 2017.

“Data for 2016 indicates that local government debt comprised the king’s share of Chinese government debt, and was also the key source of government debt risk.

“As of the end of 2016 the local government general debt balance was 9.79 trillion yuan, while the special debt balance was 5.53 trillion yuan.

“In 2017 a total of 2.36 trillion yuan in local government general bonds were issued, alongside a total of 2 trillion yuan in special bonds.

“Local government general debt was 10.33 trillion yuan as of the end of 2017, while special debt stood at 6.14 trillion yuan, for debt repayment amounts of approximately 1.82 trillion yuan and 1.39 trillion yuan respectively, or a total of 3.21 trillion yuan, which is already a sizeable decline compared 2016.”

Zhang also expects “Chinese government debt risk to further decline” following Beijing’s ongoing deleveraging campaign and efforts to curb local government leverage, while Xiao Jie says that Beijing expects” government debt risk indices to not see any pronounced change over the next several years.”

“”Chinese government debt will maintain steady growth…looking at government debt growth trends over the past several years, the peak for repayments is gradually passing, and will significantly reduce Chinese fiscal pressure,” said Zhang.

“In future the management of the Chinese government’s debt scale requires further increases to the transparency of government debt and the standardisation of government financing, on a foundation of quota management.”