BEIJING -- China's total public and private debt has reached new highs compared with the size of its economy, raising fears that Beijing's stimulus push will expand it even further.
The ratio of debt to gross domestic product, excluding the financial industry, totaled 248.8% at the end of March, according to a study by two government think tanks. That figure is 5.1 percentage points higher than it was at the end of December.
The increase stems from the record 6.3 trillion yuan ($910 billion) lenders doled out in China during the first quarter of this year.
"The economy during the January-March period was good, but it was not a free lunch," Zhang Xiaojing, a senior economist at the Chinese Academy of Social Sciences, said while presenting the figures. "The rise in the debt ratio was more than anticipated."
The ratio last climbed by 5 points during the quarter ended in March 2016, when the government authorized more lending in response to market turbulence.
Beginning in 2012, China's debt-to-GDP ratio climbed at an annual pace of 10 to 20 percentage points until Beijing pushed companies and local governments to deleverage in 2017. The ratio had hovered around 245% since the end of September that year.
Huang Xiaolong, deputy head of the Financial Stability Bureau of the People's Bank of China, the central bank, told reporters this month that the ratio will be stable on the whole. But some analysts disagree.
"We may return to a path where the debt ratio grows by double digits a year," Zhang said. "The risk is steep."
The debt-to-GDP ratio for the corporate sector reached 156.9% in March, up 3.3 points from the end of last year. State-owned enterprises shoulder 68% of that debt, a share that has grown almost consistently over a two-year period, indicating that little money is making its way to private companies.
Half of the debt owed by state-owned enterprises is to local government financing vehicles, established by regional authorities to raise infrastructure funds, Zhang said. That means one-third of corporate debt flowed to local governments.
And the rise in China's debt ratio is likely to continue.
The State Council, China's cabinet, issued a notice Monday with the Communist Party's General Office that relaxed restrictions on fundraising by local governments. The move came in response to slow progress in construction projects due to a lack of funds at regional governments. Despite the central government authorizing more projects under the stimulus designed to blunt the impact of the U.S. trade war, infrastructure investment climbed only 4% on the year between January and April.
Localities are required to cover 20% to 40% of the construction costs upfront, but the 2 trillion yuan in tax cuts included in the stimulus program depleted the revenue available to them. The new rules let local governments fund the required 20% to 40% with bonds, as long as they are issued for highway construction, high speed rail, power stations or gas facilities.
Beijing is encouraging banks and insurance companies to finance profitable infrastructure projects as well. The quota of such special-purpose bonds is set at 2.15 trillion yuan this year, up 800 billion yuan from 2018. But that is not enough to cover total infrastructure investment, which can reach 14 trillion yuan a year.
Beijing issued a notice on June 10 that, in effect, permits off-the-book borrowing by local governments, a practice that is normally strictly regulated. Projects that were halted midway after hidden debt was discovered will be allowed to borrow from banks as long as the debt balance does not rise.
China's deleveraging campaign begun in 2017 has unofficially been put on hold after many private enterprises collapsed due to a credit crunch last year. Monday's notice suggests that government officials have pivoted to debt expansion instead.
Beijing embarked on several profitable infrastructure projects after the 2008 global financial crisis, but most of these are concluded. Most of the remaining projects have questionable earning potential, and many are funded entirely by debt. These projects generate job stability in the short run, but China's long-term debt risks worsening, which threatens to bring the world's second-largest economy to a standstill.