The Relationship Between Chinese Debt and China’s Trade Surplus
In order to keep production growing, China must either increase investment, and with it its debt burden, or increase its trade surplus.
By
Michael Pettis
Published on February 6, 2025
This publication is a product of Carnegie China. For more work by Carnegie China, click here.
Last month, the People’s Bank of China (PBoC) released the
aggregate finance data for December 2024. Also known as total social financing (TSF), this is a broad measure of credit and liquidity in the economy that includes off-balance sheet forms of financing such as initial public offerings, loans from trust companies, and bond sales. It is the PBoC’s preferred measure of total non-financial debt in the Chinese economy. Although a growing amount of debt is not captured in the TSF data (for example, late payments to businesses and workers by local governments caught in a cash squeeze), most analysts use TSF as a reasonable proxy for the evolution of Chinese debt.
At the end of 2024, outstanding TSF was 408.3 trillion RMB, up 8.3 percent from the end of 2023. With China’s GDP in 2024 closing at 134.9 trillion RMB, up 4.2 percent nominally in 2024, outstanding TSF was equal to 303 percent of China’s 2024 GDP, versus 292 percent of GDP at the end of 2023. This 10-11 percentage-point increase in China’s debt-to-GDP ratio compares to the 8.5 average percentage-point increase over the past eight years.
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