China’s Debt Surges Past 300% of GDP as Deflation Risks Deepen in a Slowing $19 Trillion Economy

Economic

Summary:

China's debt-to-GDP ratio climbed to 302.3% by the end of Q3 2025, driven by public sector borrowing amid weak nominal growth and deflationary pressure. ...

Mounting Debt Amid Stalling Growth

By the close of September 2025, China's total debt burden had exceeded 302.3% of its gross domestic product, according to data from the state-affiliated National Institution for Finance and Development (NIFD). This marked a 1.9 percentage point increase from June, when the ratio first breached the 300% threshold. With aggregate liabilities now surpassing 400 trillion yuan (roughly $57 trillion), the debt load encapsulates obligations held by households, local and central government entities, and non-financial corporations.

This surge in leverage coincides with a parallel downward revision in China's 2024 GDP by the National Bureau of Statistics (NBS), reducing it to 134.81 trillion yuan ($19.16 trillion), down from an earlier estimate by over 100 billion yuan. The downward GDP adjustment amplifies the debt-to-GDP ratio, further heightening market concerns over China’s economic trajectory.

Public Sector Borrowing Surges as Private Lending Contracts

A deeper look into sector-specific borrowing reveals a divergence in credit behavior. Government debt grew substantially, with its share of GDP rising to 67.5% by the end of September an increase of 2.2 percentage points from June. This was driven primarily by an uptick in bond issuance to fund infrastructure projects and regional development initiatives. The government’s proactive borrowing strategy is an attempt to offset weakening private sector momentum.

However, unlike the public sector, households and businesses are becoming increasingly conservative in their financial commitments. Household debt relative to GDP fell to 60.4% in Q3 a 0.7 percentage point decline with the absolute volume of household liabilities registering its first year-on-year decrease since 1995. This signals a retreat from credit-based consumption, an unusual development in a country where property markets and credit growth have long fueled economic expansion.

Property Market Weakness Amplifies Deflationary Forces

One of the clearest symptoms of China’s structural slowdown lies in the real estate market. With property prices continuing to fall and no signs of stabilization in sight, homeowners have increasingly turned to selling secondary properties to reduce mortgage burdens. Investment properties are being liquidated, not replaced, while demand for new apartments remains subdued. This behavioral shift among households reflects deteriorating confidence, which in turn dampens broader consumption and investment.

On the corporate front, debt rose marginally to a record 174.4% of GDP in Q3 up just 0.4 percentage points from the prior quarter. The restrained increase stems from regulatory interventions across multiple sectors, particularly electric vehicles and steel, where the government is attempting to curtail overcapacity and speculative expansion. These administrative curbs appear to be indirectly limiting further credit growth among businesses.

Deflationary Pressures Undermine Nominal GDP Growth

Despite the rising debt, nominal GDP growth remains sluggish due to deflationary headwinds. The GDP deflator a broad measure of price changes across the economy has remained negative, indicating that China’s economy is growing more slowly in value terms than in real output. This dynamic creates a feedback loop: as nominal growth stalls, the denominator in the debt-to-GDP ratio expands more slowly than the numerator, pushing the ratio upward.

In this context, the relationship between rising debt levels and stagnant economic output is clearly causal. Increased borrowing is failing to stimulate proportional economic growth, particularly as credit flows toward non-productive or constrained sectors. Rather than boosting demand, new debt is being absorbed into existing liabilities or used for refinancing, offering minimal contribution to expansion.

Demographic Strains and Long-Term Fiscal Constraints

Adding to the fiscal challenge is China’s demographic profile. The country is grappling with a falling birthrate and rapid population aging trends that are expected to place increasing stress on the nation’s social security and healthcare systems. Rising dependency ratios mean that fewer workers are supporting a growing base of retirees, compelling the government to direct more budgetary resources toward welfare programs.

With fiscal spending already stretched and debt ceilings under pressure, China’s capacity to introduce further economic stimulus through public debt is narrowing. The prospect of a shrinking workforce and rising welfare costs creates a structural constraint that will limit the government’s flexibility in managing future downturns.

Comparative Insight: Japan’s Experience Offers a Cautionary Tale

China’s debt trajectory is beginning to resemble Japan’s during its post-bubble stagnation in the late 1990s. According to the Bank for International Settlements (BIS), Japan’s debt-to-GDP ratio stood at 377.4% as of mid-2025, still high but below its peak of 422% at the end of 2020. Importantly, Japan has been able to lower its debt ratio in recent years, supported by a mix of inflation-driven nominal growth and improved tax revenues, which reduced the need for new bond issuance.

Koji Takeuchi of the Itochu Research Institute notes that Japan’s fiscal progress stems partly from higher inflation boosting GDP and limiting further debt accumulation. However, China faces a contrasting scenario where disinflation, or outright deflation, is compounding fiscal fragility. While China’s nominal GDP per capita remains less than half of Japan’s in 1998 ($13,300 vs. $32,000), its debt ratio is now approaching similar levels, raising alarms about long-term solvency and growth.

A Debt Trap Without Demand

China’s current economic dilemma is not just about the scale of debt but the lack of productive outcomes it generates. Unlike the traditional model where credit expansion drives economic growth, the Chinese economy is now experiencing rising debt without corresponding demand growth a clear deviation from sustainable development patterns.

With households deleveraging, businesses cautious, and public finances increasingly burdened by welfare and infrastructure obligations, Beijing’s options are narrowing. Unless nominal GDP growth revives meaningfully either through structural reforms or managed inflation the economy risks becoming trapped in a high-debt, low-growth cycle similar to what Japan faced decades earlier, but with far less fiscal space and a younger middle-income economy.

To stay updated on all economic events of today, please check out our Economic calendar

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Manuel

Stocks

Hundreds of flights have been canceled at New York’s major airports as a significant winter storm descends on the city and neighboring regions.

New York City and surrounding areas are in line to get 6 to 9 inches (15 to 23 cm) of snow, with a winter-storm warning in effect between 4 p.m. Friday to 1 p.m. Saturday, local time, according to the National Weather Service. The heaviest snowfall will occur from 6 p.m. Friday to midnight, with as much as 1-2 inches an hour.

More than 1,700 flights across the US had been canceled as of 3:12 p.m. New York time on Friday, according to the FlightAware website. Roughly half of those were clustered around flights coming into or leaving New York City’s three major airports – LaGuardia, JFK, and Newark. Detroit, Philadelphia and Boston airports also saw cancellations and delays.

New York City issued a travel advisory for the duration of the storm as cold temperatures limit snowmelt, increasing the risk of slippery and hazardous road conditions.

A winter storm warning stretched from NYC to northeast New Jersey and into the Lower Hudson Valley and parts of Long Island and Connecticut, according to the National Weather Service. Some areas could see snowfall top 10 inches in the heaviest bands, the agency said.

“Road conditions will be treacherous for those traveling back from the holiday,” the weather service said.

New Jersey declared a state of emergency Friday afternoon and restricted vehicles including tractor-trailers, RVs and motorcycles from certain highways. “Unfortunately, this storm is hitting us during one of the busiest travel seasons of the year,” Acting Governor Tahesha Way said in an interview with Fox Weather. “If you don’t have to be on the roads, please stay home.”

New York has positioned utility workers so they were ready in case the extreme winter weather knocked out electricity, Governor Kathy Hochul said in an interview with WABC.

Winter weather can lead to soaring demand for electricity — crimping power supplies. So far, grids aren’t showing signs of stress, but electricity prices have started to climb. Spot prices in New York City touched about $127 a megawatt-hour at 2:10 p.m., up from $32 a day earlier.

The colder temperatures also helped to lift prices for US natural gas, used as a fuel for home heating. Futures rose about 3% on Friday.

Other parts of the country are also seeing weather-related travel disruptions.

A combination of freezing rain, sleet and snow will create hazardous travel conditions from the Great Lakes into New England and the mid-Atlantic through Saturday morning, according to the weather service.

The upper Midwest may see “a swath of snow and ice blossoming” Friday morning before a clipper system bumping up against a high pressure system in eastern Canada feeds cold air south over the border, bringing precipitation.

Later this weekend, a potentially stronger cold front will move across the Northeast, including the Washington area, which could lead to blustery conditions during the last few days of the year. Parts of western Pennsylvania is under threat of an ice storm, which could cause power outages and make travel hazardous.

Source: Bloomberg

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Manuel

Commodity

Copper surged to a record in Shanghai and rallied in New York, adding to substantial annual gains as investors bet on tighter global supplies in 2026, while also pricing in the impact of a weaker US dollar.

In China, prices gained as much as 4.7% to trade near 100,000 yuan ($14,270) a ton on the Shanghai Futures Exchange for the first time. Futures traded on the Comex in New York climbed as much as 5.6% to $5.8075 a pound, the highest intraday level since an unprecedented short squeeze in July. Benchmark trading on the London Metal Exchange will reopen on Monday after the Christmas break.

Copper’s latest leg-up on Friday came as precious metals also bolted higher, with gold, silver and platinum all surging to record highs in a powerful end-of-year rally that has dominated global commodity markets. Copper Hits Record in China, Jumps in New York on Supply Concern_1

Copper Hits Record in China, Jumps in New York on Supply Concern_1

Metals have made big gains in December, rounding off a year in which trade dislocations, geopolitical uncertainties, and supply shocks have combined to shake up the industry. On the demand side, copper is expected to be a major beneficiary of the world’s energy transition, helping to make it one of biggest winners in 2025, with a gain of roughly 42% in New York.

Earlier this year, Comex copper contracts spiked to a record in anticipation that US President Donald Trump would impose tariffs. While he ultimately excluded the most widely-traded form of the commodity from levies, that decision is due for a review in 2026. A continued rush of metal into the US has spurred concerns buyers elsewhere may end up scrambling for supplies.

Prices received an additional lift in recent sessions from a slump in the US dollar, with a Bloomberg gauge of the currency on pace for the biggest weekly loss since June. That shift makes raw materials cheaper for most buyers.

Source: Bloomberg

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Manuel

Commodity

Gold (GC=F) and silver (SI=F) investors are taking a victory lap this year as crypto bulls are left in the dust.

On Friday, gold futures rose above $4,550 to hover at or near record highs, capping a year marked by more than 50 such records.

Meanwhile, silver also jumped over $75 per ounce, extending its year-to-date gains to 150% in a parabolic rally driven by concerns about physical shortages during a time of robust industrial demand. Platinum (PL=F) and copper (HG=F) have also soared to records this year.

Some investors have been quick to point out the divergence between the metals industry and cryptocurrency, which has been led by a sharp leg lower from bitcoin (BTC-USD) in recent weeks.

"With gold now up almost 70% in 2025 and most cryptocurrencies negative, the time has come for the crypto crowd to switch to gold, " Louis Navellier, founder of Navellier & Associates, noted earlier this week.

Navellier points to central bank purchases, lower volatility, and improved liquidity in the gold market compared with cryptocurrencies.

Meanwhile, gold bull Peter Schiff, a notorious critic of crypto, stated on X, "If Bitcoin won’t go up when tech stocks rise, and it won’t go up when gold and silver rise, when will it go up? The answer is: it won’t."

The metals' climb to all-time highs comes as crypto is on track to end the year in negative territory, with bitcoin trying to avoid a third consecutive losing month.

The world’s largest cryptocurrency has diverged from stocks for the first time since 2014, despite a favorable regulatory environment and increasing crypto adoption on Wall Street.

The token has struggled to recover after long-term holders sold, and forced liquidations sent prices sliding roughly 30% from record highs near $126,000 in October to just over $87,000 on Friday.

Fundstrat's head of digital assets Sean Farrell said he isn't surprised that bitcoin has been trading in a tight range recently.

"Santa rallies are normally characterized by folks selling losers, buying winners into the year-end," said Farrell in a client video earlier this week.

"I just think a lot of folks are not stepping in here to put on a lot of risk in an asset that has underperformed for the better part of the last couple of months," he added.

The strategist said he believes there is a compelling setup for a bounce in January, as inflows are expected to increase from investors adopting bitcoin for their long-term portfolios.

"Assuming that December closes red ... history does suggest that January will be green," Farrell said.

This would mark a rare instance of bitcoin closing lower for three consecutive months, an event that has occurred just 15 times.

Crypto research firm 10X Research also noted a near-term bitcoin bounce could be in the cards.

"This may be an opportune moment to attempt a more durable rebound, as the ingredients for one are finally in place: a 30% correction, a 2.5-month decline, and technical indicators that have fully reset, conditions that have historically supported multi-week and potentially multi-month recoveries," a note from the firm on Friday said.

Wall Street strategists, meanwhile, have revised down their price targets, with Standard Chartered recently cutting its year-end bitcoin price target to $100,000 from $200,000.

The firm's head of digital assets, Geoff Kendrick, also slashed his 2026 target to $150,000 from $300,000.

Source: Reuters

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Political

Russia-Ukraine Conflict

Ukrainian President Volodymyr Zelenskiy will discuss territorial issues, the main stumbling block in talks to end the war, with U.S. President Donald Trump in Florida on Sunday, as a 20-point peace framework and a security guarantees deal near completion.

Announcing the meeting, Zelenskiy said that "a lot can be decided before the New Year," as Washington continues to drive efforts to end Russia's full-scale war in Ukraine, Europe's deadliest conflict since World War Two.

"As for the sensitive issues: we will discuss both Donbas and the Zaporizhzhia nuclear power plant. We will certainly discuss other issues as well," he told reporters in a WhatsApp chat.

Russia wants Ukraine to withdraw from the parts of the eastern Donetsk region that its troops have failed to occupy during almost four years of war, as it seeks full control of the Donbas, comprising the Donetsk and Luhansk regions. Kyiv wants fighting to be halted at current battle lines.

The U.S., seeking a compromise, proposed a free economic zone if Ukraine leaves the area. It remained unclear how that zone would function in practical terms.

Territorial issues remain a hurdle to negotiations moving forward. Any compromises on territory should be decided by the Ukrainian people in a potential referendum, Zelenskiy said.

The Zaporizhzhia nuclear power plant, Europe's biggest, is located on the front line and controlled by Russian forces.

LEADERS TO REFINE DETAILS IN US MEETING

Zelenskiy added his meeting with Trump aimed to "refine things" in the drafts and discuss potential deals on Ukraine's economy.

He said he was not ready to say if any deal would be signed during his visit, but Ukraine was open to it.

A security guarantees agreement between Ukraine and the U.S. was "almost ready" and the 20-point plan draft was at 90% completion, Zelenskiy added.

Wary of failed guarantees from allies in the past, Ukraine is seeking robust and legally-binding deals to prevent any further Russian aggression.

The White House did not immediately respond to a request for comment.

Trump, who has at times expressed frustration with the slow pace of progress in the negotiations, previously suggested that he would meet with Zelenskiy if he felt that a major diplomatic advance was possible.

European leaders might join the talks online, according to Zelenskiy. On Friday, he discussed "significant progress" in peace efforts with Finland's President Alexander Stubb.

RUSSIAN DEMANDS

It was not clear which peace plan proposals Moscow would be willing to accept.

Putin's foreign policy aide, Yuri Ushakov, spoke with members of the Trump administration after Moscow received U.S. proposals about a possible peace deal, the Kremlin said on Friday.

When asked how Moscow viewed the documents, Kremlin spokesman Dmitry Peskov said he did not want to comment as Russia felt making remarks in public could undermine the negotiations.

Russia's Kommersant newspaper reported that Putin told some of Russia's top businessmen that he might be open to swapping some territory controlled by Russian forces elsewhere in Ukraine, but that in exchange he wanted the whole of the Donbas.

Even as the talks proceeded, Russia continued hammering Ukraine's energy infrastructure and stepped up attacks on the southern region of Odesa, the site of Ukraine's main seaports. On Friday, a Russian attack on the northeastern city of Kharkiv killed two.

Zelenskiy said he planned to raise the issue of placing additional pressure on Russia with Trump.

Source: Reuters

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Justin

Palestinian-Israeli conflict

Israeli Prime Minister Benjamin Netanyahu speaks during a joint press conference with Cypriot President Nikos Christodoulides and Greek Prime Minister Kyriakos Mitsotakis (not pictured) after a trilateral meeting at the Citadel of David Hotel, in Jerusalem, December 22, 2025. ABIR SULTAN/Pool via REUTERS

Dec 26 (Reuters) - Israel became the first country to formally recognise the self-declared Republic of Somaliland as an independent and sovereign state on Friday -- a decision that could reshape regional dynamics and test Somalia's longstanding opposition to its secession.

Prime Minister Benjamin Netanyahu said Israel would seek immediate cooperation with Somaliland in agriculture, health, technology and the economy. In a statement he congratulated Somaliland's president, Abdirahman Mohamed Abdullahi, praised his leadership and invited him to visit Israel.

Netanyahu said the declaration "is in the spirit of the Abraham Accords, signed at the initiative of President Trump."

The 2020 accords were brokered by Trump's first administration and included Israel formalising diplomatic relations with the United Arab Emirates and Bahrain, with other countries joining later.

Netanyahu, Foreign Minister Gideon Saar and Somaliland's president signed a joint declaration of mutual recognition, the Israeli statement said.

Abdullahi said in a statement that Somaliland would join the Abraham Accords, calling it a step toward regional and global peace. He said Somaliland was committed to building partnerships, boosting mutual prosperity and promoting stability across the Middle East and Africa.

Egypt meanwhile said Foreign Minister Badr Abdelatty held phone calls on Friday with his counterparts from Somalia, Turkey and Djibouti to discuss what they described as dangerous developments in the Horn of Africa following Israel's announcement.

The ministers condemned Israel's recognition of Somaliland, reaffirmed their full support for Somalia's unity and territorial integrity, and warned that recognising breakaway regions poses a threat to international peace and security, Egypt's foreign ministry said.

Somaliland has enjoyed effective autonomy - and relative peace and stability - since 1991 when Somalia descended into civil war, but the breakaway region has failed to receive recognition from any other country.

Over the years, Somalia has rallied international actors against any country recognising Somaliland.

The former British protectorate hopes that recognition by Israel will encourage other nations to follow suit, increasing its diplomatic heft and access to international markets.

In March, Somalia and its breakaway region of Somaliland also denied receiving any proposal from the United States or Israel to resettle Palestinians from Gaza, with Mogadishu saying it categorically rejected any such move.

Reporting by Maayan Lubell and George Obulutsa and Abdi Sheikh in Mogadishu, and Hatem Maher in Egypt; Writing by Tala Ramadan; Editing by Louise Heavens and Howard Goller

Source: Reuters

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Stocks

Target Corp. shares rose on Friday after the Financial Times reported that an activist investor built up a stake in the big-box retailer, citing people it didn't identify.

Toms Capital Investment Management has made a significant investment in Target, the FT said, without disclosing further details.

Target shares jumped as much as 6.7% on Friday. The stock is headed for an annual decline of about 25% following a difficult year in which the company lost market share and sales slumped.

In response to a request for comment, Target said it maintains "regular dialogue with the investment community" and its top priority is "getting back to growth." The company said its plan to improve its merchandise, shopping experience and technology "will drive the business forward and deliver sustained, long-term value for shareholders."