China needs bond market reforms to rein in soaring debt, S&P Global says

China needs bond market reforms as soaring debt poses significant longer-term risk to the country, according to S&P Global.

Despite the government's efforts, debt levels remain very high even as nominal GDP growth has slowed, the rating agency said in a report on Thursday.    

"Policymakers understand the need to simultaneously control leverage and sustain economic growth" to manage systemic risks over the long-term, the analysts noted. As a result, have tightened local government financing in recent years.

But market reforms appear to have "taken a back seat," with authorities focused on addressing pressing issues such as the real estate crisis, stimulating economic growth, as well as keeping local government debt under control, S&P said.

Pushing ahead with bond market reforms may be necessary to "concurrently" tackle those challenges, as it could lower debt levels over the long term, the report said.

Large levels of public, private and hidden debt in China have long raised concerns about potential systemic financial risks.

In April, Fitch cut its outlook on China's sovereign credit rating to negative, citing risks to the country's public finances as the economy faces increasing uncertainty.

The rating agency predicted China's general government debt could surge to 61.3% of GDP this year, from 56.1% in 2023 — deteriorating from 38.5% in 2019.

"We forecast the debt ratio to rise to 64.2% in 2025 and nearly 70% by 2028, higher than our forecast of just under 60% in our previous review," Fitch said.

In its latest report, S&P highlighted China's "extraordinary credit expansion," due to high investment and lower financing efficiency as one of the major factors for fueling Beijing's debt problems.

Large infrastructure spending and