Should China Deleverage?
China’s mounting debt problem recently moved into the spotlight when Moody’s downgraded the country’s sovereign rating. But China is confronting a more important macroeconomic challenge than curbing the accumulation of government and corporate debt.
BEIJING – China’s mounting debt problem recently moved into the spotlight when Moody’s downgraded the country’s sovereign rating. But was the downgrade really warranted?
Though China’s overall debt-to-GDP ratio is not an outlier among emerging-market economies, and its levels of household and government debt are moderate, its corporate debt-to-GDP ratio, at 170%, is the highest in the world, twice as large as that of the United States. China’s corporate leverage (debt-to-equity) ratio is also very high, and rising.
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