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By Micah McCartney
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A top Chinese economist has issued a warning over the risks of overreliance on stimulus for short-term growth, including driving debt to unsustainable levels.
Newsweek has contacted China's Foreign Ministry for comment by email.
Why It Matters
The Chinese government was slow to roll out a major stimulus package following the COVID-19 pandemic, as economic growth slowed and consumer demand flagged. Burdened by a real estate crisis and high levels of local government debt, President Xi Jinping emphasized "high-quality development" and selective investment over broad stimulus.
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Some analysts argue that the measures that did arrive were too modest to put the world's second-largest economy on surer footing.
What To Know
Liu Xiaoshu, the chief economist at the Bank of Qingdao and director of the China Chief Economist Forum, said in a recent op-ed that reliance on fiscal and monetary stimulus is not a path to sustainable growth.
"Short-term stimulus often relies on increased government borrowing," Liu wrote. "Over time, this builds up debt, raising fiscal risk. As debt grows, more funds go toward interest payments, squeezing out social services and other public spending."
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Liu warned of a "vicious cycle" in which debt accumulation erodes investor confidence, raises borrowing costs and may eventually spark a crisis.
He cited Japan's "Lost Decades" and southern European countries such as Greece as cautionary examples where stimulus and deficit spending failed to resolve underlying structural weaknesses, leaving deep debt burdens in their wake.
Liu's remarks contrast with more pro-deficit voices, such as Lian Ping, an economist at East China Normal University who supports higher levels of government spending to boost domestic consumption.
China set its official 2025 deficit ratio target at 4 percent of gross domestic product—a record high. "Although this figure is significantly higher than in the past," Lian said in published comments, "the Chinese government's fiscal situation and debt level are generally stable and healthy."
What People Are Saying
Lian Ping, an economist at East China Normal University, said last December during the Central Economic Work Conference, where officials set the national economic agenda: "Although this figure is significantly higher than in the past, considering that the Chinese government's fiscal situation and debt level are generally stable and healthy, especially the low ratio of central government debt to GDP, this increase will not bring too much risk."
What Happens Next
Fitch Ratings projects that China's overall government deficit will rise to 8.4 percent of GDP this year, up from 6.5 percent in 2024, while debt climbs to 68.5 percent of GDP, which is high for a developing economy.
Despite fiscal concerns, Fitch upgraded China's 2025 growth forecast to 4.7 percent, citing stimulus and exports. Beijing set its growth target for about 5 percent expansion this year.
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