Jogger in Shanghai, China on April 10, 2021.

Qilai Shen | Bloomberg | Getty Images

China’s debt has grown dramatically over the past decade and is one of the greatest economic challenges facing the ruling Communist Party of China, which turns 100 this week.

Identifying the skyrocketing mountain of debt as a potential threat to economic stability, Beijing has attempted in recent years to reduce the country’s reliance on debt for growth. But that deleveraging stalled for much of last year due to Covid-19.

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Last year’s pandemic hit China’s economic growth and prompted authorities to make it easier for companies to borrow. As a result, China’s debt – measured by the size of its economy – rose to record levels in 2020.

Here’s a look at China’s rising debt over the years and its impact on economic growth.

Record debt

In the wake of the global financial crisis of 2007 and 2008, China quickly piled up debt as authorities handed out a massive stimulus package, largely funded by bank loans.

The country’s debt level stabilized over several years before accelerating again in the third quarter of last year, reaching an all-time high of nearly 290% of GDP, data from the Bank for International Settlements showed.

However, China isn’t the only country to see a surge in debt in 2020.

Other major economies such as the US, Japan and Europe also saw debt ratios rise, BIS data showed. It did so as governments around the world increased spending to help businesses and households cope with the challenges posed by the pandemic.

Breakdown of China’s Debt

But the composition of China’s debt is different from that of the United States and Japan.

According to BIS data, the corporate sector in China accounted for a large part of total debt, accounting for more than 160% of GDP. Meanwhile, national debt made up the largest proportion of total debt in both the US and Japan, the data showed.

As its economy recovered from the pandemic, China has been renewing its multi-year debt containment efforts in recent months – after pausing much of last year.

These efforts have shown some results. China’s outstanding total social finance, a broad measure of credit and liquidity in the economy, rose 11% year over year at the end of May – after growing 11.7% in the previous month.

Economists at British bank Barclays predict that credit growth in China will be between 10% and 10.5% by the end of this year, compared to 13.3% by the end of 2020.

China’s economic rise

A debt-driven economic boom in the wake of the global financial crisis helped China overtake Japan as the world’s second largest economy in nominal terms in 2010. China has remained in this position since then, followed by the US