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A woman rides a scooter past a construction site for residential buildings by indebted Chinese developer Country Garden in Tianjin on August 18. Photo: Reuters
Opinion
Macroscope
by Anthony Rowley
Macroscope
by Anthony Rowley

Global debt crisis goes well beyond China’s property sector woes

  • The crisis in China’s property sector has been in the spotlight in the past year, but the rise in global debt levels should not escape the world’s attention
  • Investors and analysts have been more focused on inflation, but with price rises abating, debt is likely to be the leading concern once again
Anthony Rowley
Anthony Rowley
Why you can trust SCMP
The widespread debt problems in China’s property sector have received a great of publicity in the past year, and there is no question they are severe. However, the expansion of global debt during this time – arguably a matter of much greater consequence – appears to have been all but ignored.
Soaring debt is far from being solely a Chinese problem. Debt is approaching crisis levels in some sectors of the US, Japanese, British and other economies, but this does not seem to enter the headlines nearly as often.

According to the Institute of International Finance’s (IIF) latest Global Debt Monitor report, global debt reached a “staggering” US$307 trillion in the third quarter this year. Large increases in debt were seen in both mature and emerging economies and across a spectrum of companies, households and governments.

“Staggering” is the kind of term those attempting to describe the debt problems in China would use. It is strong language coming from a sober institution such as the IIF, but the description is warranted nevertheless.

The fact that global debt has reached such proportions is unlikely to set media or other commentators alight with sudden interest. It will almost certainly take another full-blown international debt crisis to do that.

It is not only absolute levels of debt and the fact that global debt currently exceeds three times global annual GDP that should be exciting interest. Such figures are not so alarming in themselves; it is the context that matters.

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Anger mounts as China's property debt crisis leaves flats unfinished

Anger mounts as China's property debt crisis leaves flats unfinished
The global debt build-up has accelerated sharply across government, corporate and household sectors – by US$9.5 trillion in the first nine months of 2023 alone. The biggest increases came in China, the United States, Japan, France, Britain, India, Brazil and Mexico.
What is worrying – though by no means universally appreciated – is the fact that accelerated debt accumulation has gone hand in hand with a rapid rise in interest rates, a trend unlikely to be reversed any time soon. This means that not only is the absolute amount of debt sharply higher now, the cost of servicing debt is as well.
US Federal Reserve Board Chairman Jerome Powell delivers remarks after the Fed refrained from raising interest rates following its two-day conference at the Federal Reserve in Washington on November 1. Photo: EPA-EFE

This is manifesting itself in a “sharp increase in corporate bankruptcies”, according to the IIF. In the year to October 30, business bankruptcies surged by more than 30 per cent across a swathe of countries, including South Korea, Australia, Japan, Canada, Sweden and France. They also rose by significant increments in the US and UK.

It is easy to see why corporate failures have begun this ominous upwards trend. Soaring debt servicing costs have been accompanied by a sharp slowdown in growth of bank credit across mature and emerging markets.
Syndicated loan activity has also plunged while long-term bond and loan issuance slowed in 2022. Meanwhile, outstanding sovereign debt in default has “hit record highs”, according to the IIF. All this is occurring at the same time as demands for borrowing from myriad sectors concerned with handling the effects of climate change is likely to be at record levels.

Yet another worrying feature is an impending surge in bond and loan redemptions that will come due in 2024 in mature and emerging markets. How many of these can be rolled over in tightening credit conditions is unknown. The debt mountain has been created by massive borrowing during more than a decade of record low interest rates made possible by repeated injections of central bank money and fiscal stimulus in pandemic-hit economies.

That has since gone into reverse. As Invesco’s former chief economist John Greenwood and Steve Hanke of Johns Hopkins University noted in a recent commentary in The Wall Street Journal, that bodes ill for the banking and financial system. Money supply is contracting, they said, and the first effects of that are higher market interest rates for a brief period. “Then comes an economic slump.”

Customers at a Rite Aid store in Los Angeles on November 29. Last month, Rite Aid filed for bankruptcy protection and announced plans to close more than 150 stores. A recent bankruptcy court filing revealed that Rite Aid plans to close an additional 31 stores across the United States. Photo: EPA-EFE
The tidal wave of debt has largely escaped the notice of many investors and analysts, whose gaze has been directed instead at the rise in inflation. Now that inflation is easing, debt is likely to attract more attention.

By November this year, corporate debt had reached more than US$91 trillion globally – US$49 trillion in mature markets and US$42 trillion in emerging markets. China’s corporate debt reached 167 per cent of GDP as of November “reflecting years or rapid debt accumulation, a structural economic slowdown and ongoing stress in the real estate sector,” the IIF notes.

Debt problems are by no means confined to China. Corporate debt levels stood at 126 per cent in South Korea, 107 per cent in Vietnam, 87 per cent in Malaysia and 85 per cent in Thailand. The ratio reached 115 per cent in Japan, 96 per cent in the euro zone, 65 per cent in the UK and 76 per cent in the US.

Household debt levels are especially high in some emerging markets – notably South Korea at 100 per cent of GDP, Thailand at 92 per cent, Malaysia at 68 per cent and China at 63 per cent, while in the US the level is 73 per cent and in the UK 79 per cent. We have been borrowing from the future, but that debt is fast coming due.

Anthony Rowley is a veteran journalist specialising in Asian economic and financial affairs

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