Li Yang, an academic from the Chinese Academy of Social Sciences and chairman of the National Institution for Finance and Development, delivers a keynote speech at the China Development Forum (CDF) 2023 in Beijing on March 25, 2023. Photo: Courtesy of CDF

China's debt liability rate is currently within the international safe zone, and won't impact domestic economic growth as some have hyped, Li Yang, an academic member of Chinese Academy of Social Sciences and chairman of National Institution for Finance and Development, told a panel at the China Development Forum held in Beijing on Saturday.
China's debt is indeed rising, but the debt ratio, and debt servicing ratio are all within the international safety line. More importantly, the scale of government assets and their proportion of GDP is also increasing, so it provides a way to solve the problem: by exchanging assets and debts by better using assets, China's debt problem will be solved smoothly, Li said.

The debt problem is a very big problem, which cannot be solved by one country and requires mutual cooperation, Li said, calling for efforts of global cooperation and macro policy coordination "more than ever before."

Different from the past, the global debt crisis since this century has mainly originated from developed economies. In the past 20 years, due to long-term ultra-low interest rates and abundant liquidity, the US government debt market has become a source of global liquidity. If the US market shrink slightly, the liquidity crunch will be felt all over the world, Li said.

The situation after 2021 is completely different, said the expert, citing a series of unexpected shocks, such as the spread of the epidemic, the conflict between Russia and Ukraine, among others.

Then the long-lost inflation suddenly came, and the US cannot find a solution to the eye-burning problem in short period, thus it resorted to the old "weapon" in desperation — to raise interest rates.

Within a year, the interest rate has "brutally" increased several times. Changes in interest rates led to a sharp depreciation of various financial assets, which in turn triggered a comprehensive balance sheet recession, resulting in a dilemma for the US and the world, resulting in the collapse of Silicon Valley Bank and a series of "domino" events in the global financial market, Li said.

China's overall local government debt ratio remains relatively low and faces no problem of defusing systematic risks, China's Finance Minister Liu Kun said in March,noting that the liability ratio of statutory debt last year was about 50 percent, which is relatively low level by global standards.

He said competent authorities have been required to fully harness their primary role in resolving government debt risks and that all efforts should be made to ensure that no systemic risks arises.

Global Times