China’s technology ambitions may get plenty of attention when President Donald Trump meets Chinese leader Xi Jinping this week, but the country’s slower growth model is facing a less glamorous problem: a very large and still-expanding pile of debt.
The warning is not simply about Beijing’s official government borrowing. Mark Williams, chief Asia economist at Capital Economics, has argued that a broader measure of debt across China’s public and private sectors points to a much more serious challenge than the headline fiscal numbers suggest.
By his estimate, China’s total debt-to-GDP ratio, excluding the financial sector, has more than doubled since 2010 and has topped 300%. That figure has not been independently verified here, but it captures the central concern in his analysis: China has continued to add debt faster than its economy has grown.
That sets China apart from the recent debate over U.S. federal debt. America’s federal borrowing has reached troubling levels, with debt above 100% of GDP for the first time since the period just after World War II. But when public and private borrowing are counted together, the U.S. picture looks different. Total U.S. debt was about 265% of GDP last year and has fallen from pandemic-era highs, helped by stronger growth and the fading of emergency stimulus.
Why China’s Debt Looks Different
China’s debt problem is broader than one government balance sheet. Williams has pointed to borrowing by companies, the central government and local governments as key drivers of the increase. His conclusion that borrowing has outpaced GDP growth has not been independently verified here, so it is best understood as the analyst’s assessment rather than a settled public accounting.
Household borrowing, meanwhile, appears to have weakened after the collapse of China’s property market. That matters because the property downturn has already hit consumer confidence, household wealth and local government finances. Yet the overall debt burden has kept rising, suggesting that other parts of the economy are still relying heavily on credit.
Nearly 40% of outstanding debt is owed by the public sector when local government financing vehicles are included, according to Williams’s calculation. That figure has not been independently verified here, but local government financing vehicles are widely seen as a major pressure point because they have often been used to fund infrastructure, industrial projects and other local priorities outside ordinary budget channels.
The comparison with other large economies is striking, though it should be treated carefully. Williams says China’s total debt burden now exceeds that of the U.S., the eurozone, the U.K. and many emerging markets, while Japan remains one of the few major economies with a higher debt load. That ranking has not been independently verified here, but it reflects his broader point that China’s debt level is unusually high for an economy still trying to grow at a rapid pace.
| Economy or group | Debt signal discussed | Why it matters |
|---|---|---|
| China | Analyst estimate above 300% of GDP, excluding financial-sector debt | Debt appears to be rising faster than growth |
| United States | Total public and private debt around 265% of GDP last year | High federal debt, but broader debt ratio has eased from pandemic peaks |
| Japan | Described by the analyst as one of the few larger economies with more debt | Shows how unusual China’s debt load may be outside advanced-economy cases |
The Local Government Pressure Point
Beijing has signaled concern about local government debt risks, especially debt tied to off-budget or opaque borrowing. Authorities recently called for more work on restructuring local debt so borrowers can meet payments on time, while also trying to prevent new hidden borrowing.
Those steps suggest policymakers know the issue cannot simply be ignored. But the same local governments are also expected to support growth, infrastructure and priority industries. That creates a difficult balance: limiting debt can slow activity, while supporting activity can require still more borrowing.
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For investors and businesses watching China, the practical question is not whether every debt estimate is exact. It is whether credit is still being used to keep weaker parts of the economy running, and whether that crowds out healthier investment. That is where the risk becomes more than a government-finance story.
Corporate Borrowing and Overcapacity
Williams also argues that Chinese companies are borrowing faster than their sales are growing. In his analysis, business debt has doubled since 2019 while revenues are only about 30% higher. Those figures have not been independently verified here, but the concern is clear: if companies take on much more debt without matching revenue growth, repayment becomes harder and banks have more incentive to extend or roll over loans.
That can keep troubled firms alive longer than market conditions would normally allow. It may also worsen the overcapacity problem already visible in parts of Chinese industry. When too many producers keep operating despite weak profits, supply stays high, prices stay under pressure and stronger firms may struggle to earn adequate returns.
China has been dealing with deflationary pressure, and an economy-wide price measure has reportedly shown a prolonged stretch of falling prices. The central government has tried to address overproduction and intense competition, but the country’s reliance on exports and manufacturing-led growth can still encourage more output.
This is why the debt story matters beyond bond markets. It touches industrial policy, banking stability, trade tensions and the health of global manufacturing supply chains. If China keeps supporting production even when domestic demand is weak, the effects can spill into export markets through lower prices and tougher competition.
Not a Lehman-Style Warning, but Still a Drag
The debt buildup does not necessarily mean China is close to a sudden financial crisis. Williams has made that distinction as well, noting that China’s financial system survived the property crash better than many outside observers expected.
There are reasons for that resilience. China has high domestic savings, capital controls and a financial system in which the state plays a dominant role. Those factors can reduce the odds of a classic market panic or an abrupt foreign-capital flight.
But a lower crisis risk is not the same as a healthy growth model. If banks keep supporting unproductive companies, and if local governments continue borrowing to meet growth targets or protect jobs, debt can become a long-term weight on productivity.
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Williams’s core warning is that the same system designed to prevent a sharper slowdown may also be making the economy less efficient. Credit can cushion job losses and keep factories open, but it can also preserve excess capacity, deepen losses in weak industries and make future growth harder to generate without still more borrowing.
For buyers, suppliers and investors exposed to China, that means the debt story is not just a macro headline. It is a signal to watch pricing pressure, customer payment risk, bank support for weaker firms and the durability of demand in sectors tied to local government spending or state-backed industrial priorities.