debt to gdp ratio

China’s debt-to-GDP ratio is the sum of corporate debt, household debt, and government debt all together as a portion of GDP. This ratio is currently around 250 to 260 percent of GDP. If you take the world’s hundred largest economies in the world and you line them up, you can see that, in terms of debt-to-GDP ratios, China is in the middle of the pack – higher than most developing but lower than most developed. Now think about at China’s relative stage of development. It is right in the middle. Common sense then says that China’s debt ratio is where it should be.
The more interesting question concerns less the level of Chinese debt and more the speed at which it grew. Over the last 10 years, the debt ratio in China increased by 100 percentage points. Every country that has grown at that rate has had a financial crisis. Market watchers then argue that China will certainly crash. So why is it that China survived this period of rapid debt growth without a crash?
The answer is the role of private property. China did not have a private property market until the early 2000s. The Chinese people previously had housing provided by the state, but then housing was privatized. From 2004 onwards, land prices soared, driving up property values by 600 percent over the last 10 years. This rate is unheard of in the West. If property values in the West increased by 50 to 100 percent, we would talk about property bubbles. What about 600 percent? The reason that this rise has been relatively sustainable for China is because the property values started at zero. When prices surged, houses were sold and resold, and households took out mortgages, what happened to the debt-to-GDP ratio?   Debt levels surged, but GDP did not increase, because land transfers do not count in GDP, only the labor associated with construction counts.  This process explains the bulk of the debt surge in China in the last 10 years