China, the economic powerhouse once hailed for its meteoric rise, now faces a daunting reality as its debt-to-GDP ratio is projected to skyrocket to a staggering 200% by 2044, according to the IMF. This means that for every unit of GDP generated, the Chinese economy will carry a burden of two units of debt—a troubling sign that signals potential trouble ahead.
In comparison, this debt burden would be a whopping 50% higher than the estimated debt-to-GDP ratio of the United States within the same timeframe. What’s more, China’s non-financial sector debt-to-GDP ratio already hit a record high of 310% in 2023, painting a grim picture of its financial stability.
Adding to the woes, China’s GDP growth has been on a steady decline, more than halving from 10.6% in 2010 to a meager 5.2% in 2023. Is China’s era of parabolic growth coming to an end?
Demographics further compound the challenges facing China. The UN projects a significant decline in China’s population, plummeting from 1.426 billion in 2024 to below 800 million by 2100. This demographic shift, coupled with a declining total fertility rate, raises concerns about the country’s future labor force and economic vitality.
At the heart of China’s economic downturn lies a real estate crisis of unprecedented proportions. With 70% of family assets tied up in property, the collapse of the real estate market has had a pervasive impact on Chinese society. Dozens of top property developers are in default, and every 5% decline in home prices wipes out trillions in housing wealth.
The Chinese government’s attempts to stabilize the real estate market through new regulations and liquidity injections may offer temporary relief, but the long-term sustainability remains uncertain. Meanwhile, population trends, including rising unemployment among youth and a declining birth rate, cast a shadow over China’s economic prospects.
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More weakness for China?
China's Debt-to-GDP ratio is expected to reach 200% by 2044, according to the IMF.
In other words, for 1 unit of GDP the Chinese economy will have 2 units of debt burden.
This means that Debt-to-GDP in China would be 50% HIGHER than estimated US… pic.twitter.com/8ILDt1keur
— The Kobeissi Letter (@KobeissiLetter) May 10, 2024
https://www.pewresearch.org/short-reads/2022/12/05/key-facts-about-chinas-declining-population/
China's Real Estate Collapse
At the heart of the decline in family wealth is China's real estate meltdown, which is having a pervasive effect on a society where 70% of family assets are tied up in property.
Towards the end of last year, 34 of the top 50 Chinese property… pic.twitter.com/owUbTR8RjW
— Reef Insights (@ReefInsights) February 27, 2024