There are different views on the present scale of public debt in China within academic circles and government departments. But according to Professor Victor Shih, a political economist at Northwestern University in Evanston, Illinois, China’s hidden borrowing may push government debt to 96% of GDP next year.
Bloomberg: “The worst case is a pretty large-scale financial crisis around 2012,” said Shih…who spent months researching borrowing transactions by about 8,000 local-government entities. “The slowdown would last at least two years and maybe longer,” the author of the book “Factions and Finance in China” said in a phone interview March 1.
“By Shih’s count, China’s debt may reach 39.838 trillion yuan ($5.8 trillion) next year.”
Surging borrowing by local-government entities, uncounted in official estimates of China’s debt-to-GDP ratio, is apparently the key reason for Shih’s concern. On the other hand there are those who suggest China’s scale of public debt is not large and there is still expanding space within the acknowledged safety line. But considering the safety line is – as prescribed by the Maastricht Treaty – at 60%, these two contrary judgments for the present scale of the country’s public debt will continue to be argued.