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Inside China 24 January 2018

Promising progress on debt - but the job is far from done

Jeremy Stevens

In 2017 China started making important progress on its debt profile. The total debt-to-GDP ratio actually declined, from 243.9% in 2016, to 243.4% in 2017. Leverage is still growing, but it is growing more slowly than over the past five years.

Total debt growth slowed, from 11% y/y in 2016, to 10% y/y in 2017, well below the five-year average of 15% y/y in 2016.

  • The good news: credit to the heavily indebted corporate sector – which accounts for two-thirds of China’s total debt – moderated in 2017.
  • The bad news: household debt continued to balloon in 2017. We will watch this closely in 2018, especially as the vast majority has been used for mortgages, and a correction in the housing market is therefore a risk.

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