Abstract
From a global perspective, the eruption of global financial crisis in 2007–2008 was followed by increasing leverage of government sector and deleveraging in private sector in advanced economies; emerging economies generally experienced an increase in leverage and China is not an exception.
Research group members Xin Chang and Duoduo Tang also contributed to this chapter.
X. Zhang, deputy director-general of National Institution for Financial and Development (NIFD), deputy director-general and research fellow with the Institute of Economics, CASS; Xueliang Liu, research fellow with the NIFD Center for National Balance Sheets, and associate research fellow with the Institute of Economics, CASS.
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Notes
- 1.
Xi Jinping’s speech at the 38th Collective Workshop of the Political Bureau of the CPC Central Committee on January 22, 2017.
- 2.
Combination between Local Government Guidance Funds and PPP may Spawn New Debt Risks, Fu Bingtao’s blog http://fubingtao.blog.caixin.com, February 17, 2017.
- 3.
Heavy interest burden could lead to or aggravate debt crisis.
- 4.
We arrived at current-year average benchmark loan interest rate through average weighting based on the month in which interest rate is executed.
- 5.
Given the large number of bonds and the problem of discount and premium upon issuance, it is inaccurate to follow coupon rate. Using yield upon maturity is an approximate estimate and may cause interest payment to be more affected by market interest rate volatility.
- 6.
This is essentially different from the falling leverage ratio of corporate sector caused by monetary policy tightening in 2011 and other years.
- 7.
Deleveraging: Data, Risks and Countermeasures, Center of National Balance Sheet Studies, NIFD, August 31, 2016.
- 8.
In June 2013, the balance of LGFV loans was 9.6 trillion yuan.
- 9.
Including local government inventory debt-for-bond swaps issued in great volumes after 2015.
- 10.
Following the interest rate difference of 5%, local government bond swap of each 1 trillion yuan can be considered as saving an interest payment of 50 billion yuan for the local government.
- 11.
This is generally consistent with relevant local government liabilities published by the Ministry of Finance by the end of 2016 (Clarifying the Scope of Government Liabilities and Blocking Illegal Fundraising Channels: Ministry of Finance Officials Meet the Press on Local Government Liabilities, November 4, 2016). According to the initial estimate by the Ministry of Finance, local government bonds issued in 2015–2016 will save interest payment of 600 billion yuan for local governments.
- 12.
This is roughly consistent with the calculations by JP Morgan and Societe Generale Wei Yao. Wei Yao’s calculation includes the payment of interest and principal. According to his calculation, China’s interest payment in 2012 as a share in GDP reached 11.1% and principal payment as a share in GDP was 18.8%. The combined share of interest and principal payment totaled 29.9%.
- 13.
Deleveraging: Data, Risks and Countermeasures, Center of National Balance Sheet Studies, NIFD, August 31, 2016.
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Zhang, X., Liu, X. (2019). Interest Burden and Debt Sustainability. In: Li, Y. (eds) Managing Financial Risks Amid China's Economic Slowdown. Research Series on the Chinese Dream and China’s Development Path. Springer, Singapore. https://doi.org/10.1007/978-981-13-5752-7_1
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DOI: https://doi.org/10.1007/978-981-13-5752-7_1
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