September 20, 2016


This is hardly the first time economists and investors have raised the alarm about China’s growing debt pile, but it’s nevertheless an alarming piece of analysis. The report estimates that China’s debt stood at 255 percent of GDP at the end of last year. And given that China has continued to borrow to prop up its shaky economy, that figure is almost certainly even higher today.

It is a huge amount of debt, but it’s not unprecedented. Niall Ferguson estimates in The Cash Nexus that Britain’s debt-to-GDP ratio reached 268 percent in 1822. As students of history know, the sun didn’t set on the British Empire for over one hundred years after that. Indeed, as Walter Russell Mead explains in God and Gold, the ability to maintain so much debt helped Britain defeat its European challengers (Spain and France, primarily) and grow its empire. (U.S. debt-to-GDP, for the record, stands at around 105 percent according to the IMF).

The British sustained high levels of debt by being exceptionally good and (for the time) highly sophisticated bankers. But they also taxed their citizens far more than, say, the French did. France struggled under a much smaller debt load for nearly two centuries because it wasn’t able to squeeze its citizens as much as London could.

China will likely have to find a different formula to finance its way through the hard times ahead. Britain survived because its citizens continued to have faith that their government would pay them back, and so British debt became a valuable asset. It’s not clear that things are the same in China.

Nor that they should be.

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