China’s Sovereign Balance Sheet and Its Risk Assessment

Li Yang , Zhang Xiao Jing , Chang Xin ,Tang Duoduo , and Li Cheng
Chinese Academy of Social Sciences (CASS), Beijing, China

 
Abstract: Using available data and necessary estimations, this paper provides a tentative picture of the balance sheet of China’s sovereign account between 2000 and 2010. The main findings indicate that the net worth of China’s sovereign assets had been positive and increasing during the period under review. This implies that the Chinese government has sufficient sovereign assets to cover its sovereign liabilities, therefore the likelihood of a sovereign debt crisis in China is extremely low in the near term. Moreover, although China’s leverage ratio (total liabilities/GDP) is far lower compared to advanced economies, it seems higher than that of other major emerging economies such as Brazil, Russia, and India (BRIC). In fact, the leverage ratio has been increasing rapidly over recent years and requires special attention. In particular, according to sector-specific analysis, high corporate liability ratios (percentage to GDP) constitute a major concern of China’s national balance sheet. In 2010, this liability ratio exceeded 100 percent, which exceeds the 90 percent level observed in OECD countries. Lastly, this paper concludes that a sustainable economic growth and structural transformation of growth model are the fundamental means to taming China’s balance sheet risks.
Key words: balance sheet approach, sovereign balance sheet, leverage ratio, transformation of development pattern.

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