Chinaʹs sovereign debt: A balance-sheet perspective

We analyze Chinaʹs sovereign debt by constructing balance sheets for Chinaʹs government and public sector. We find that Chinaʹs government debt-to-GDP ratio is lower than that of most large developed economies. We also find the debt-to-asset ratio of Chinaʹs government and public sector significantly lower than its own historical height (1998–2002). Local government debt is mainly to finance infrastructure investments. Local government debt risk is amplified by two mismatches. The first is the income-expenditure mismatch between central and local governments. The second is the maturity mismatch of short-term debt and long-term infrastructure investments. The maturity mismatch may cause short-term repayment difficulties.