• Debt arises when an economy transforms its savings into investment. The relevant question to the concerns about China’s debt is whether it is backed by domestic savings or by borrowed savings from overseas.
• Debt built on borrowed savings under an open capital account is more susceptible to financial instability. The financial structure of an economy also affects the amount of its leverage. The questions are how much foreign debt does China have and how different is China’s financial structure from other countries.
• There are renewed concerns that more debt-fueled growth by Beijing will only exacerbate China’s excess capacity and delay the needed structural changes. How bad is this situation and what is the evidence?
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