Why there is no reason to be concerned about Chinese debt?

The Chinese debt ratio (of all economic agents in China) is high and rising, which often creates concern , but this ratio should be analysed in light of the country’s macro-financial equilibrium . The level of savings is very high and there are controls on capital outflows in China: the bulk of Chinese savings is therefore lent or invested in China and cannot be lent to the rest of the world. Since the savings rate is very high and the equity market is small in China, the country will therefore at equilibrium inevitably have a high debt ratio (it has to absorb the savings) and a low real interest rate (since there is a savings surplus ex ante ). So China’s high debt ratio is not worrying since it reflects the Chinese savings rate; the situation would be far more worrying if Chinese debt led to external debt , as can be seen in major emerging countries (Argentina, Turkey, India, Indonesia , etc. ).