Quora Answer: How Can China Have a Total Debt of 300% of Its GDP, Yet Still Maintain Strong Foreign Reserves & Economic Stability?

The following is my answer to a Quora question: “How can China have a total debt of 300% of its GDP yet still maintain strong foreign reserves and economic stability?”

China’s macro leverage ratio, combined household, corporate, and government debt, crossed 302.3% of GDP in 2025, according to the National Institution for Finance and Development.  Western financial media greeted this as an impending catastrophe.  What that coverage consistently omits is the single fact that actually determines whether a debt ratio is dangerous: who holds the debt, and in what currency.

The overwhelming majority of China’s debt is owed by Chinese entities to Chinese lenders, denominated in yuan, financed through a state-controlled banking system that answers to Beijing rather than to foreign bondholders demanding repayment on foreign terms.  This is structurally identical to the reason Japan has run a government debt-to-GDP ratio above 235% for years without triggering a sovereign default: when a government owes money to its own citizens and its own banks, in its own currency, that government retains policy tools no externally indebted country possesses.  It can restructure, roll over, or direct its own state banks to extend terms, because the creditor and the debtor ultimately answer to the same authority.  Compare that to a country such as Argentina, whose repeated defaults stemmed specifically from dollar-denominated debt owed to foreign creditors who could not be instructed to simply wait.  China’s debt problem is a domestic balance-sheet management exercise.  It is not a solvency crisis waiting for a foreign creditor to call the loan.

The Two-Track Currency System the Critics Never Explain

China operates two distinct renminbi markets.  The onshore yuan, CNY, trades within mainland China under strict People’s Bank of China control, subject to capital restrictions and a managed daily trading band.  The offshore renminbi, CNH, trades freely in Hong Kong, Singapore, and London, driven by genuine market supply and demand rather than central bank fiat.  This dual-track structure lets Beijing manage domestic monetary conditions with one hand while gradually internationalising the currency with the other, without exposing the entire domestic financial system to the kind of speculative attack that crippled Thailand’s baht in 1997.  China’s own central bank has actively defended this architecture: in January 2016, the PBOC directed state banks to buy offshore renminbi in Hong Kong to punish hedge funds shorting the currency, driving CNH overnight interbank rates above 60% overnight.  A country running a “reckless” 300% debt ratio does not casually inflict that kind of pain on foreign speculators betting against it.

Why China Bought US Treasuries, and Why That Era is Ending

China accumulated US Treasury holdings for decades as the natural counterpart of its trade surplus, absorbing dollars earned from exports and parking them in the deepest, most liquid sovereign bond market on the planet.  That relationship is now unwinding deliberately.  China’s Treasury holdings fell to US$652.3 billion by March 2026, the lowest level since September 2008, part of a broader diversification rather than a panic-driven exit.  China’s foreign exchange reserves, by contrast, sit at roughly US$3.4 trillion as of February 2026, the highest level since November 2015, with seven consecutive months of growth, and the People’s Bank of China simultaneously extending a sixteen-month streak of gold purchases, pushing its gold reserves to US$387.6 billion.  This is not a country running out of firepower.  It is a country deliberately reducing concentration in a single foreign asset class after watching Washington freeze roughly US$300 billion of Russia’s reserves in February 2022, a lesson every non-aligned central bank on the planet absorbed simultaneously.  China needed Treasuries when it had nowhere else liquid enough to park its surplus.  It no longer needs them exclusively, and diversifying away from a jurisdiction that has demonstrated it will weaponise reserve access is not recklessness.  It is the single most rational response available to it.

The Property Market Conundrum

China Evergrande Group, once the country’s largest property developer by sales, defaulted in 2021, carrying over US$300 billion in total liabilities, and was ordered into liquidation by a Hong Kong court in January 2024.  Country Garden followed a similar trajectory.  Chinese household debt has grown alongside this property downturn, with nonperforming household debt rising 21% in 2025 to at least 2.2 trillion yuan, roughly US$325 billion, and an estimated 10.6% of China’s 1.1 billion adults behind on debt payments by the end of that year.  This is real distress, concentrated specifically in a property sector that absorbed a disproportionate share of Chinese household savings for two decades, because Chinese households, facing capital controls and an underdeveloped domestic capital market, had few genuine alternatives to real estate as a savings vehicle.

A household savings rate running well above 30% of income, channelled overwhelmingly into property because domestic equity markets remain shallow, volatile, and dominated by speculative retail flows rather than institutional depth, was always going to produce the concentration risk now unwinding.  The fix is deeper capital markets, broader investment alternatives, and continued diversification of both household savings and sovereign reserves away from a single asset class, whether that asset class is domestic property or foreign Treasuries.  China is already doing the second half of that homework, evidenced by the gold accumulation and the reserve diversification above.  The first half, giving its own households a genuine alternative to real estate speculation, remains unfinished, and that is a legitimate criticism.  It is simply a different criticism than “China’s debt ratio will trigger a Western-style sovereign crisis,” which confuses a structural, self-financed, self-currency debt overhang with the externally financed defaults that actually define sovereign crises elsewhere.

Western commentary treats America’s own debt trajectory, US$38.3 trillion in absolute terms, with a debt-to-GDP ratio Moody’s has already flagged as heading toward 134% by 2035, as a manageable, sophisticated market phenomenon, while treating China’s higher ratio as evidence of impending collapse.  The difference is not the arithmetic.  It is who is doing the counting, and which country the counters happen to live in.

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Terence Nunis | Executive Chairman, Equinox Zenith | Author, The 1% Playbook: The Billionaire Cheat Code