Growing Debt in China

May 16, 2014 | Jesus Jimenez, Principal

This week’s chart of the week examines the difference in private non-financial sector debt levels as a percentage of GDP for the United States and China. Private non-financial sector includes non-financial corporations (both private-owned and public-owned), households, and non-profit institutions serving households. Rising debt levels are a concern to any economy, as higher debt as a percentage of GDP is a potential drag on growth.

In the chart above, the most striking development is that China’s debt (as a percentage of GDP) is now higher than the U.S. There are a variety of reasons for this, including deleveraging in the U.S. in the wake of the Great Recession, as well as easy credit coupled with massive infrastructure spending in China. Collectively, these trends have driven the relative debt in China higher than the U.S., which is especially worrisome for future growth prospects in China, and by extension, investments in the country. It is not surprising that investor sentiment has cooled regarding China as of late, and investors will closely watch the growing debt level in the coming years.