China’s debt ratio as a part of its economic output reached a new high in June as the deficit widened due to heavy borrowing from local governments to expand economic growth and finance their operations.

Nikkei Asia cited data from the Bank for International Settlements on Monday, December 5, reporting that debts in the country’s nonfinancial sector hit nearly $52 trillion, or almost 300% of the gross domestic product. The figure shows China’s highest debt-to-GDP ratio since 1995.

The news outlet noted that while Beijing’s zero-COVID policy is the primary cause of the problem in the short term, China also faces challenging issues in the long run. Its aging population and the falling birth rate will put more fiscal pressure on social welfare programs, leaving the regime with less funding to boost growth.

As Beijing pushes local authorities to invest in infrastructure projects to stimulate the economy, they issue more bonds to raise additional funding. New debt figures this year will reach a record high of over $570 billion.

Heavy borrowings lead to fiscal deficits. Reuters reported in October that the fiscal deficit of 31 provincial-level administrative regions in China reached nearly $950 billion (6.74 trillion yuan) in the first eight months of this year.

According to Bloomberg, there are growing signs that China’s local authorities are facing worrying debt burdens. Thirty-one provincial authorities in China now have outstanding debts close to the risk threshold of 120% of income from its Ministry of Finance. Those crossing that debt level will face more borrowing restrictions, limiting potential economic growth.

Over the next five years, local authorities will face intense maturity pressure as the maturity of bonds worth almost $2.1 trillion (15 trillion yuan) will be due. This amount represents 40% of their outstanding debts.

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