China's Real Estate Collapse Sends Local Debt To Record $18.9 Trillion
BY TYLER DURDEN
THURSDAY, DEC 04, 2025 - 11:35 AM
Almost 20 years ago, when the Lehman/AIG collapse and the ensuing global financial crisis sent the world into a brief but acute depression, it was China's massive debt-fueled growth dynamo that kick started the world economy and lifted the globe out of what would have been a lost decade - if not worse. The one trade off to this historic kickstart: China ended up doubling its total debt, which then continued growing at an exponential rate until the covid collapse sent China's property sector - the biggest asset of its massive middle class - into a tailspin, and sparked a historic economic crisis. Only this time, because its total debt was already at 350% of GDP, Beijing no longer could wave a magic debt wand, inject a few trillions in credit, and make it all go away. Instead, the housing market has been in steady decline for the past 5 years and if anything, the decline has accelerated now that China's Vanke - the last remaining state-backed property giant - is on the
verge of collapse.
Unfortunately for China, which has done an admirable job of shoving all its economic woes under the rug while pretending it is growing at a immutable 5% year in and out, it's about to get worse.
As Japan's Nikkei reports, China's local government debt continues to balloon as the prolonged,
5-year-long and counting, real estate slump has led to slumping income from property sales,
pushing local government bond issuance for the year to a record high.
The total owed by local governments and the local government financing vehicles (LGFV) that fund their projects now
sits at an estimated 134 trillion yuan ($18.9 trillion), which suggests that total public debt to GDP is far above 200%... and rising (by comparison in the US it is 100%... and rising). Add another 200% in private sector debt, and you can see why China debt problem is even bigger than that of Japan. It's also what, according to Rabobank's Michael Every, underlines China’
s structural necessity to maintain capital controls and a vast, neo-mercantilist trade surplus (i.e., China will continue dumping goods and exporting deflation as the alternative means game over).
