Abstract:
From 2000 to 2010, China’s national balance sheet experienced rapid expansion. The accumulation of external assets, infrastructure, and real estate formed the primary drivers of asset growth, reflecting the historical process of accelerated industrialization and urbanization under an export-oriented development strategy. On the liabilities side, debt incurred by various levels of government and state-owned enterprises expanded at a faster rate than that of the private sector, highlighting the institutional characteristic of a state-led economy.
Risk assessments of China’s sovereign balance sheet suggest the following:
(1) Overall, China’s sovereign net worth remains positive, implying that the likelihood of a sovereign debt crisis remains extremely low for the foreseeable future;
(2) Short-term risks are concentrated in property-related credit and local government debt, while long-term risks lie in the external balance sheet, corporate indebtedness, and unfunded social security obligations. Most of these are contingent liabilities and closely linked to China’s past growth model;
(3) Simulations of sovereign debt dynamics underscore the critical role of maintaining a favorable growth–interest rate differential in mitigating debt risks. Therefore, the fundamental approach to addressing sovereign debt risks lies in transforming the development model and sustaining long-term economic growth.

Keywords: Balance Sheet Expansion; Contingent Liability Risk; Growth Model Transformation; Sustainable Growth