Trump’s tariffs threaten to shatter China’s economy. It already has cracks

FAN Editor

China has long relied on infrastructure investments to drive its economic growth.

Investments contributed to 44 percent of China’s nominal GDP in December 2017, compared to about 20 to 25 percent for countries like the United States, Japan and Germany, according to figures compiled by economic data provider CEIC.

China’s fixed asset investment is slowing, however, with investment growth falling to a record low in August. Economists including Nicholas Lardy from the Peterson Institute for International Economics, however, warn against paying too much attention to the historically low figure as China is currently revising the way it measures fixed asset investment.

Still, as the trade war escalates, it will not be easy for the Chinese government to use public spending to boost investments due to its mounting debt.

The world’s second-largest economy had a relatively stable level of debt until the financial crisis in 2008 when it spent a whopping 12.5 percent of its GDP to stimulate the economy.

The country had encouraged loans to boost economic growth, with Chinese banks extending a record 12.65 trillion yuan ($1.88 trillion) in loans in 2016. That credit explosion stoked worries about financial risks, so authorities in 2017 pledged to contain the rapid build up in debt.

Since then, Chinese debt-to-GDP has steadily grown to about 250 percent — or about $28 trillion, according to DBS and CEIC.

However, the Institute of International Finance has put China’s debt at more than 300 percent of its GDP.

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