China’s Hidden Debt Risk
China’s national balance sheet, which boasts positive net assets, has garnered significant attention in recent years. But, to assess China’s debt risk accurately, policymakers and economists must consider the risks that lie in the country's asset structure, as well as liabilities that are not included on its balance sheet.
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BEIJING – In the last 200 years, there have been more than 250 cases of sovereign-debt default, and 68 cases of domestic-debt default. None of these was an isolated incident. Indeed, such defaults – combined with factors like large current-account or fiscal deficits, overvalued currencies, high public-sector debt, and insufficient foreign-exchange reserves – have always triggered financial crises, from the Mexican peso crisis in 1994 to the Russian ruble crisis in 1998 to the American subprime mortgage crisis in 2008.