Racing Against Time: China's Battle with Skyrocketing Debt | Digging into China

Hi, I'm Dong Seong. Welcome to Digging into China, where we explore China in depths to review unique perspectives. Looking forward to China's future, the three pillars sustaining its economy. Exports, investment, and consumption are largely being propped up by government borrowing. Exports depend on state subsidies. Investment hinges on massive public infrastructure projects and the consumption is driven by government handouts and national subsidies. This year the central government plan to issue 11.86 trillion yen in bonds. But by mid 2025 8.85 trillion had already been spent. This heavy borrowing fueled a GDP growth rate exceeding 5% in the first half of the year. However, it also pushed China's macro leverage ratio past 300%. How does this compare globally? Outside of financial hubs like Luxembourg, Switzerland, and Singapore, only Japan, France, and Canada have higher leverage ratios. Even the United States lacks far behind. Indeed, the US government did ramp up spending during the pandemic. But in recent years, its leverage ratio has been declining, particularly in the private sector, where non-financial business and households have reduced that the most. Japan, France, and Canada, much like the US, have also pursued the post pandemic deleveraging. While these developed nations focus on paying down debt, Xi Jinping is taking the opposite approach, aggressively borrowing to boost GDP. China's 300% macro leverage ratio is now just 60 percentage points behind the Japan's. If borrowing continues at this pace, China could overtake Japan in a few years, claiming the dubious honor of leading the world's debt rankings. Time is running short for Xi Jinping and by extension for all Chinese citizens. In this video, I'll explain why she may have only 5 years left to maintain this trajectory. In truth, before 2008, China wasn't a debt-driven economy. Historical data shows that prior to 2008, Chinese business were actually reducing debt with leverage ratios steadily declining. But the one ja ba's 4 trillion yen stimulus in 2008 introduced China to the allure of borrowing and it became hooked. In just over a decade, China pushed household and business leverage to their limits, leaving Xiinping with no choice but to rely on central government borrowing as the last resort. According to the Bank for International Settlements, China's household leverage ratio surged from 20% to the critical 60% threshold in just 11 years. By contrast, Japan took 24 years and the US took 40 years to reach similar levels. This tell us something about which country's citizens bear the heaviest burden. In China's marriage market, for example, owning property has become a liability. Once a home was a prerequisite for finding a partner, now people fear the debt tied to it, worried that children will inherit the burden. Ironically, those without the property are now more desirable. Today, a young person's most valuable asset is their parents' pension. If your parents are retired from state jobs with an average pension over 10,000 yen, matchmakers might wear out your doorstep. So after taking on massive debt to buy homes and contributed to GDP, what have Chinese citizens gained? Little to nothing. Now let's examine the pace of China's rising leverage. The Chinese Academy of Social Sciences National Balance Sheet Research Center published the quarterly macro leverage ratio data. Using China's official figures, let's review the past 5 years. At the end of 2018, China's macro leverage ratio was at 235% with households at 51%, the government at 36% and the business at 148%. By the end of 2024, it had climbed to 291%. The government sector saw the sharpest rise reaching 61%. Households ticked up slightly to 61% while business still somewhat restrained rose to 168%. In 6 years, the macro leverage ratio increased by 56% averaging nearly 10 percentage points annually. But in the first half of 2025, it broke 300%. Meaning Xiinping accelerated the borrowing to twice the previous pace. Let's do a simple calculation. If she maintains this borrowing speed for 5 years, what will China's macro leverage ratio be? We know the first half of 2025 saw a 10 percentage point increase. The remaining bond issuance for the second half is about a half of the first half's amount. Assuming new no additional borrowing, the macro leverage ratio might rise by another 5% this year, totaling a 15% increase for 2025. If this pace holds for 5 years, the ratio would reach 365% enough to rival Japan's. Xiinping's so-called 15th 5-year plan could be China's last. By 2030, he may no longer dare to borrow in the broader US China rivalry. If the US can contain China for 5 years, China's own debt would bring it to its knees. In early August, US Treasury Secretary Bessant described China's economy as facing internal collapse. He argued that China isn't a true rival to the US, burdened by its own problems and likely to implode without any action from the US. Besson's assessment is incisive. If things uphold as he predicts, Trump might witness China's debt crisis before his term ends. Here's a sobering reality. While China pouted on leverage over the past 5 years, reaching a 300% macro leverage ratio, BIS data shows that the major developed economies reduced there by an average of 24%. Even emerging markets saw an average leverage increase of just 16%. China meanwhile became the world's fastest debt accumulator with a 47% surge in its macro leverage ratio. But has this mountain of debt delivered anything beyond impressive GDP figures? It's like investing. If you borrow to invest, you need to returns to cover the cost. Xi Jinping's approach driven by a simplistic mindset is to single-handedly prop up the economy. Struggling consumption issue subsidies, spend 500 yen, get 100 back while the government are covering the 100. Weak private investment launch massive infrastructure projects, a 1.2 trillion yen hydro power project on Yalu Zongu River, a 100 billion UN power grid for the Pingloo Canal, and a countless other largecale projects nationwide, doubling as weak work relief programs. Unemployment complaints work on government projects. This creates the illusion of a thriving economy with consumption and investment seemingly robust. Exports lagging with the US waging a tariff war. The government borrows more to subsidize exports and secure orders. Notice the trend. She's borrowing isn't about generating returns. It's about maintaining stability. Imagine China as a company with a dazzling balance. sheets, factories, and equipment galore, but its products don't sell, and the profits don't materialize. The company borrows to pay wages and interest just to avoid layoffs and collapse. This debt can't generate returns, it only grows. The Ministry of Finance's monthly reports reveal the truth. China is sacrificing fiscal space for artificial GDP growth. While China doesn't have to rely on debt to compete with the US, the current political environment, economic structure, and external pressures leave shei with little choice. There are alternatives. In theory, structural reform to redistribute stateowned enterprise profits to private firms, encouraging investments and profitability, direct cash transfers to citizens as the US did to boost consumption or selective deleveraging redirecting funds from low return infrastructure and overcapacity industries to high value sectors. These sound promising, but they are slow, taking years to show results, and they will upset powerful interest groups. Short-term risks include business failures, rising unemployment, and local government bankruptcies, which could spark unrest. A recent clash between citizens and the police in Jang Yo city ostensibly overdefending the vulnerable likely reflects the broader public frustration with the government. These reforms carry high political costs and external pressures like US tariffs won't wait years to hit. Trump has near global support isolating China. Borrowing to prop up the economy is a quick fix. issue bonds, launch projects, secure jobs, boost investments, and stabilize GDP. The Communist Party has perfected this process thanks to one Jabau's legacy. The system executes it swiftly and smoothly, delaying economic collapse, stabilizing jobs and markets, and enabling propaganda that portrays China as unfaced by US sanctions, buying time to maneuver. But the side effects are severe. A growing debt snowball, declining debt efficiency, and a shrinking fiscal space. She's economic knowledge shaped by his political career is limited. When Jao's stimulus likely remains his most formative lesson, and he's been replicating it ever since. Yet, she may not realize he has only five years left. If he can't ease US pressure by then, China could hit Japan level debt by 2030. Continue borrowing risks depleting foreign reserves and rendering the UN, the Chinese currency worthless. With a Trump's term ending in 2029, even a pro-China successor won't save shei from his own policies. For the next 5 years, the US can simply watch. Many doubted Trump's tariff strategy, but the US as the world's top consumer holds exporting nations in its grip, isolating China. How can China break this blockade? She's chosen a risky path, mortgaging the future to delay collapse, hoping to outlast the US. But the US can play the long game, using tariffs to pressure China while controlling supply chains, technology, and the capital flows. Each new debt weakens China's endurance. In five years, with Japan level debt, China will lose its ability to challenge the US. Resisting the US was flawed from the start. Dang Xiaoing knew this, but she is determined to learn the hard way. Dung would likely be appalled. For those in China, it's time to prepare. 5 years pass quickly and the conditions could deteriorate rapidly. At a dynasty's end, the crisis often converge. So don't cling to false hopes. When the reckoning comes, no one will be spared. Thank you so much for watching. If you find this video helpful, please like it, drop a comment below, and hit the subscribe button right here. It really helps YouTube suggest my video to others. I'll be back with more content soon. Until then, be