China’s Accumulation of Debt Could Impact the Global Economy

debt-debt-trapConcerns about China, which have already triggered the global market disorder this year, have not gone away and its debt pile continues to pose risks to the global economy.

China’s overall debt touched a record 237 percent of gross domestic product (GDP) in the first quarter of 2016, an increase from 148 percent at the end of 2007.

The Chinese debt could seriously impact the Asian economies as well as the European economies. That could result in a probable negative trend, which could continue for a longer-term.

Some experts believed that any significant accumulating debt was good news for the European economies in a cyclical slowdown. However, it would be bad news for the key emerging market economies of China and Russia.

The debt was the main reason for the global financial crisis of 2007-08 and has since increased globally in relation to gross domestic product (GDP).

The Bank for International Settlements warned that any spiralling debt could have disastrous consequences for the overall health of the global economy.

Global debt surpassed $135 trillion towards the end of 2015, an increase from under $110 trillion towards the end of 2007.

In the developed economies at the centre of the crisis, certain private-sector deleveraging has happened, although public-sector debt has increased gradually.

But the most disturbing development has been the sharp rise in private-sector debt in other places, particularly in many emerging market economies, including the biggest, the main engines of international growth post-crisis.

Several economists believe that China’s debt pile was the one that posted the most risk to the global economy.

However, market experts struck a positive note on global debt. Defaults and crises are part of a business cycle. There would be more crisis going forward, but they would be addressed and resolved.

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