China drowning in debt as inflation, production issues derail economy

New Delhi: China may be dominating most of the world with its economic prowess, but chinks seem to be appearing in the dragon’s financial armour.

The Chinese economy appears to be derailing. Even the Dragon itself cannot deny the haze that has loomed over China's rosy image. While China strives to show the world that it is the world's largest economy, deflation in the country is a sign of an unbalanced economy.

What ails the Chinese economy? 

Due to China's excess production capacity, prices of daily essentials are continuously falling. According to a Bloomberg report, prices of nearly 70 everyday products have fallen faster than the Consumer Price Index (CPI) data. Particularly significant reductions have been seen in the prices of items purchased by ordinary consumers.

How has China deceived the world?

China has consistently lied to the world and never lets its truth be known. Even during the COVID-19 pandemic, China hid information about the pandemic from the world. Even after the truth about COVID-19 was revealed to the world, it continued to conceal the true figures of COVID-19 cases in its country.

China is now similarly concealing the truth about its economy from the world. China's economy is growing at a rate of five percent, but the truth is that China is becoming increasingly burdened with debt. Meanwhile, in neighbouring India, everyday prices have reached their lowest levels.

Why is inflation rising?

Productivity in China has increased so much that there are fewer people to buy goods. To encourage more Chinese consumers, the prices of daily essentials have been significantly reduced.

What is the debt situation? 

According to a report by the State Administration of Foreign Exchange (SAFE), China's government debt is projected to reach approximately US$18.8 trillion by the end of 2025, while external debt is estimated to be approximately US$2.37 to US$2.44 trillion.

China's domestic debt is steadily rising. This debt is being exacerbated by private sector debt. According to a report by the Federal Reserve Bank of Dallas, China experienced a massive period of debt growth following the global financial crisis (2007-09).

According to reports, China's non-financial private sector debt to gross domestic product (GDP) ratio increased from 106 percent to 188 percent over the eight-year period ending in 2016.

According to media reports, China's domestic debt will nearly double in 2025 compared to 2015. Today, this domestic debt is 100 times China's GDP.

What are the reasons for China's GDP growth?

Despite China's debt growth, its GDP continues to grow. This is due to China's increased export volume. Consistent with IMF and World Bank projections and data, China's per capita GDP is projected to increase significantly, reaching approximately US$13,300 to US$13,800 in 2024-2025. China's GDP was less than $100 in the 1960s, but due to heavy exports, it has reached more than $13,000 today.