Debt burden hangs over China's economic future

Outlook

Debt-funded stimulus has supported GDP growth since the global financial crisis, but its effectiveness is diminishing. The scale and speed of credit growth suggest that it may become a significant drag on growth as bad loans accumulate.

Impacts

• A well-capitalised banking sector makes a financial crisis unlikely.
• A portion of corporate debt is 'disguised' public borrowing by local government shell companies; fiscal reforms will clarify the situation.
• China's relatively low level of public debt gives it the capacity to bail out banks, large firms and local governments if necessary.