While the two countries figured prominently in the discussion, China drew scrutiny for a significant jump in its share of the total global debt stock, to 20 per cent from 5 per cent, since 2008, according to IMF data. US debt, in contrast, has remained stable in the same time frame, at 29 per cent.
That was “well above” the developed market average of 256 per cent, and the “high interest repayment burden is going to crowd out” the ability of local governments to raise more, she said.
With foreign participation in China’s debt markets relatively low, the risk in this scenario is less about global contagion and more about the knock-on effect among neighbouring countries, Chang said.
The rising debt burdens and other factors dragging China’s economy, such as the ongoing property slump, have brought the country’s growth below government expectations to 4.8 per cent this year, she added.
“And that has more of an impact on the emerging markets economies,” said Chang.
In particular, commodity exporters in the emerging Asian economy would be affected, she added, triggering not economic collapse but a “slower-growth scenario … where the spillover is on the growth impact, particularly in emerging markets”.
America’s debt burden, meanwhile, was at risk of increasing owing to global investors’ doubts about its ability to rein in deficit spending, according to Jeromin Zettelmeyer, director of Brussels-based think tank Bruegel, another panellist in the IMF discussion.
“In the US, there are deficits as far as the eye can see, and the political priorities are not to reduce these deficits in a credible way,” Zettelmeyer said. “And so you basically wonder how long will markets be patient.”
This week the US Census Bureau released data showing that the country’s poverty rate spiked to 12.4 per cent last year, from 7.8 per cent in 2021, as a broad array of federal benefits meant to help families afford food and housing during the pandemic expired.
“This can only get worse and, of course, my worry is the first main casualty of all of this is going to be the fight against climate change.”