China’s Bad Dream

Since his first address as China’s president last year, Xi Jinping has been espousing his goal of advancing the so-called Chinese Dream. But the imperative of addressing the unprecedented amount of debt that China has accumulated in recent years is testing Xi’s resolve – and his government is blinking.

LONDON – Since his first address as China’s president last year, Xi Jinping has been espousing the so-called “Chinese Dream” of national rejuvenation and individual self-improvement. But the imperative of addressing the unprecedented amount of debt that China has accumulated in recent years is testing Xi’s resolve – and his government is blinking.

The Chinese government’s uncertain ability – or willingness – to rein in debt is apparent in its contradictory commitment to implement major structural reforms while maintaining 7.5% annual GDP growth. Given that China owes much of its recent growth to debt-financed investment – often in projects like infrastructure and housing, meant to support the Chinese Dream – any effort to get credit growth under control is likely to cause a hard landing. This prospect is already prompting the authorities to delay critical reforms.

To be sure, China’s debt/GDP ratio, reaching 250% this month, remains significantly lower than that of most developed economies. The problem is that China’s stock of private credit would normally be associated with a per capita GDP of around $25,000 – almost four times the country’s current level.

We hope you're enjoying Project Syndicate.

To continue reading, subscribe now.

Subscribe

Get unlimited access to PS premium content, including in-depth commentaries, book reviews, exclusive interviews, On Point, the Big Picture, the PS Archive, and our annual year-ahead magazine.

http://prosyn.org/IBwSBqK;

Cookies and Privacy

We use cookies to improve your experience on our website. To find out more, read our updated cookie policy and privacy policy.