Public debt dynamics

Alicia Garcia Herrero and Jianwei Xu

Chapter 9 in Handbook of Public Finance in China, 2026, pp 192-209 from Edward Elgar Publishing

Abstract: China's increasing public debt and local government financing vehicles have raised concerns among international observers and policymakers. Although the scale of public debt, which is close to 100 per cent of GDP, is alarming, most of it is held by domestic players, allowing the government to access resources to ease the pressure on repayment. It is essential to understand the nuances of China's government debt to draw the right implications for the economy. Our projection shows that China's public debt is expected to continue growing in the next decade, thereby affecting the long-term economic growth rate. To mitigate this, the government must choose to either reduce the fiscal deficit or keep interest rates low. However, in the long run, the government needs to implement further reforms to ensure debt sustainability and minimise financial risks.

Keywords: Public debt; Fiscal deficit; Long-term growth; Risk; Sustainability (search for similar items in EconPapers)
Date: 2026
ISBN: 9781035311705
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