Unpacking China’s Debt: A Conversation with Nicholas Borst

On this episode of the ChinaPower Podcast, we are joined by Nicholas Borst to discuss China’s debt situation and fiscal policy. He explains that China’s debt levels have increased dramatically relative to the size of the Chinese economy and China has more debt as a proportion of GDP compared to the United States. Much of the debt is concentrated in local governments, state-owned enterprises (SOEs), and real estate developers. Mr. Borst describes China’s decentralized fiscal system where the Chinese central government is fiscally conservative and local governments bear more risk and are responsible for healthcare, infrastructure, and social insurance as well as supporting key central initiatives such as the Belt and Road Initiative. Although no Chinese local government has defaulted to date, Chinese SOEs have defaulted, and their defaults have led to shocks to the Chinese market. Looking forward, Mr. Borst argues that the reforms passed at China’s recent “Two Sessions” will do little to address the root issues of China’s fiscal issues. 

The Impact of Covid-19 on China’s Belt and Road Initiative: A Conversation with Agatha Kratz

In this episode of the ChinaPower Podcast, Dr. Agatha Kratz joins us to discuss how the Covid-19 pandemic has affected China’s Belt and Road Initiative (BRI). Dr. Kratz provides background on the history and past successes of the BRI from 2013-2020. She argues that, prior to the pandemic, China’s BRI was at a low point. There were fewer contracts and increased scrutiny on past unsustainable projects and loans. Dr. Kratz contends that those pre-existing trends were further accentuated by the Covid-19 travel restrictions, deteriorated financial conditions, and disruptions in trade. Lastly, Dr. Kratz identifies the core problem with the BRI to be long-lasting debt – which can lead to debt crises – in recipient countries.