Moody’s Raises Worries over China Loans as Communist Party Paper Calls Debt Load Original Sin

Moody’s Investors Service Tuesday flagged worries over China’s burgeoning debt load a day after a party newspaper branded high leverage in the economy as the “original sin”.

Total debt in the world’s second-largest economy stands at 280 percent of gross domestic product (GDP), much of it owed by entities owned by or related to the government, potentially leaving Beijing on the hook for a portion of these loans, Moody’s said in a report.

China’s actual government debt is more modest at around 40 percent of GDP with state-owned entities (SOEs) owing 115 percent of GDP, higher than any other rated sovereign, Moody’s said.

Moody’s estimated that that liabilities worth 20 percent to 25 percent of GDP could potentially require restructuring. Not all of this restructuring will strain the government’s balance sheet though. The government would potentially support some SOEs though engineering mergers, injecting equity or reducing their size, the ratings agency said.


This article is for general information purposes only. It is not investment advice or a solution to buy or sell securities. Opinions are the authors; not necessarily that of OANDA Corporation or any of its affiliates, subsidiaries, officers or directors. Leveraged trading is high risk and not suitable for all. You could lose all of your deposited funds.

Craig Erlam

Craig Erlam

Senior Market Analyst, UK & EMEA at OANDA
Based in London, Craig Erlam joined OANDA in 2015 as a market analyst. With many years of experience as a financial market analyst and trader, he focuses on both fundamental and technical analysis while producing macroeconomic commentary. His views have been published in the Financial Times, Reuters, The Telegraph and the International Business Times, and he also appears as a regular guest commentator on the BBC, Bloomberg TV, FOX Business and SKY News. Craig holds a full membership to the Society of Technical Analysts and is recognised as a Certified Financial Technician by the International Federation of Technical Analysts.
Craig Erlam