China’s Debt: Structure, Determinants and Sustainability

In this paper, we analyse the evolution of China’s debt structure in terms of a new comprehensive debt dataset and then identify the determinants of China’s debt structure using stepwise multivariate regression; furthermore, employing a fiscal space framework and DSR approach, we assess the sustainability of China’s domestic and external debt. The empirical results suggest that first, China’s GDP growth rate, the borrowing costs and the financial markets’ development are key common determining factors for China’s debt structure; second, the highly indebted local governments and non-financial corporations could lead to potential risks for China’s financial stability. Nevertheless, China’s debt by sector is sound and sustainable in the near and medium term