Is Chinese public debt under pressure: an impending crisis?

The Chinese public debt has reached alarming proportions, and the question many economists are asking is no longer “if” but “when” it will collapse. According to official estimates for the end of 2025, China’s total public debt had reached approximately 526.8 trillion yuan, equivalent to about 375,000 yuan for every Chinese citizen. But these numbers alone do not tell the true story of the tax pressure weighing on the nation.

The Unsustainability of the Fiscal Deficit and the Mountain of Debt

First, let’s look at the basic structure of Chinese public finance. In 2025, forecasts indicated national budget revenues of 21,604.5 billion yuan, while public expenditures were estimated at 28,739.5 billion yuan. This creates an annual deficit of 7,135 billion yuan, an amount that represents about 33% of total tax revenues, or nearly one-third of all that the state collects.

Considering the estimated GDP for 2025 (140 trillion yuan), the deficit constitutes 5% of the national economic wealth, a figure that highlights the structural pressure on the tax system. All this imbalance must primarily be filled through the issuance of new public debt, creating a vicious cycle of increasing indebtedness.

The Overwhelming Burden of Debt Service

According to data from Chinese monetary authorities, the balance of government securities in circulation was expected to reach 95.44 trillion yuan by the end of 2025. Applying an average interest rate of 3.5%, the annual interest payment would reach about 3.34 trillion yuan, a figure that highlights the real problem of Chinese public debt.

Of this interest, nearly 15.5% of total tax revenues (3.34 trillion ÷ 21.6 trillion) is absorbed solely by debt service. In other words, nearly 1 yuan out of every 6 of tax revenue must be allocated to interest payments. Even more serious: this represents about 46.8% of the entire new debt issued that year (3.34 trillion ÷ 7.14 trillion). This means that nearly half of the borrowed money is immediately consumed by interest payments, drastically reducing the capacity for investment in infrastructure and public services.

The Refinancing Cycle: A Game of Upward Pressure

An even more concerning figure emerges when analyzing the dynamic flow of debt. By the end of 2024, the overall national debt balance was 81.58 trillion yuan and is expected to rise to 95.44 trillion yuan in 2025, with a net increase of 13.86 trillion yuan.

However, the total issuance of national debt in 2025 amounted to 26.3 trillion yuan, a figure significantly higher than the net increase. How is this possible? The answer reveals the true mechanism sustaining the debt:

• 12.44 trillion yuan were used to repay maturing principal (refinancing old debt)
• 3.44 trillion yuan covered interest payments
• Only 10.42 trillion yuan remained actually available for new public spending

In practice, more than half of the borrowed money is used not for new investments, but to keep existing debt alive. China finds itself in a situation where borrowing serves mainly to pay off previous debt, a model that cannot continue indefinitely.

The Hidden Threat: Private Debt

However, the complete picture of Chinese debt is even more worrying when considering the private sector. Chinese private debt, including that of households and businesses (excluding government securities), amounts to approximately 370 trillion yuan. Combining public and private debt, China’s total debt approaches 470 trillion yuan.

This does not include some implicit and off-balance-sheet debts not captured by official statistics, which could add further pressure to the system. The combination of unsustainable public debt and a massive amount of private debt creates a web of interconnected vulnerabilities, where the failure of one sector could quickly contaminate the entire economic system.

When Chinese public debt will actually collapse remains uncertain, but the numbers leave no room for doubt: the current system is unsustainable, and restructuring is inevitable.