China’s Debt Interest Costs Are Soaring and Growing Faster Than Any Other Major Budget Category

China is projected to allocate 19.2% of the central government’s general public budget to debt-servicing payments this year, up from 12% in 2014, according to Conference Board estimates cited by the Financial Times.

The financial pressure on Beijing’s ledger highlights a growing divergence between the world’s two largest economic superpowers. While the U.S. economy accelerates amid resilient consumer spending and an artificial intelligence boom, China’s fiscal health faces heavy strains from ballooning borrowing costs and an expansive mountain of public and private debt.

Debt-Servicing Costs Outpace All Major Budget Categories

Interest payments on borrowing have expanded faster than any other major item in China’s public spending. According to estimates from the Center for Strategic and International Studies, spending on interest payments skyrocketed 341% between 2013 and 2025.

That explosive growth easily outpaced broader government spending increases during the same timeframe. Total expenditures jumped 102%, while outlays on social security and employment climbed 207%, defense rose 141%, and science and technology grew 137%.

By comparison, debt servicing costs command roughly 19% of Beijing’s expenditures. That puts China’s interest burden above the 14% share carried by the U.S. federal budget, though it remains below Japan’s 25.6%.

Mounting National Debt and the Pressures of State-Led Growth

The International Monetary Fund reports that China’s gross general government debt reached 107% of GDP this year, a sharp climb from 41% in 2015, with projections pointing toward 124% by 2030. Broader gauges measuring public and private indebtedness outside the financial sector have doubled since 2010 and topped 300% of GDP, according to estimates from Capital Economics.

Photo: UA.NEWS

Beijing has attempted to counter decelerating GDP growth—which is on pace to undercut its annual target of 4.5%-5%—by channeling state bank financing into priority industries like electric vehicles, robotics, artificial intelligence, and renewable energy. Yet this heavy pressure to lend has generated widespread inefficiencies as trade partners erect barriers, domestic consumers remain reluctant to spend, and the property sector continues to dig out from an epic crash.

Corporate debt has doubled since 2019 even as corporate revenues crawled up by only 30%. Creditors routinely roll over loans to prevent struggling enterprises from failing, leaving nearly a third of those supported companies operating at a loss.

“The irony is that one driver of both government borrowing and the lax lending standards of [state-owned] banks is the desire to prop up economic growth and prevent job losses,” Mark Williams, chief Asia economist at Capital Economics, wrote in May.