Chinese debt Qilai Shen/Getty Images

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?

corporate debt to gdp china us

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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