The US and China are on a collision course over China’s growing debt.
Both countries are seeking to cut back on their public debt, but have failed to agree on a solution to China’s looming fiscal crisis.
The debt crisis has seen China’s economy shrink from nearly $2tn in 2013 to $6tn in 2019, but the latest round of Chinese debt write-downs has not been announced, leaving analysts to believe that the debt issue will not be resolved anytime soon.
But, the latest downgrade comes just weeks after China announced that it would not pay back its outstanding loans on time in 2018.
In a statement released by the Ministry of Finance, China’s state-owned National Development and Reform Commission said the US and Europe had failed to meet their debt obligations.
The US and its allies have agreed to an outline for a debt settlement agreement in 2019 which would see China pay off its debts by 2023.
The US has already agreed to pay back $2.8tn in 2018 and China has promised to repay its debts of $1.7tn by 2028.
But China’s government has been unwilling to negotiate with the US over debt.
US President Donald Trump has promised that China would repay the US with its own money.
China is reportedly also in talks with the European Union and Japan over a debt relief deal.
In a recent statement, China reiterated its commitment to honouring the US-EU deal.
“We will not compromise on our commitments,” a spokesperson for the National Development Commission told Reuters news agency.
On Tuesday, the IMF said China’s fiscal debt had grown from around $1tn in 2016 to $1,100bn in 2020, with an average annual growth rate of 2.6% between 2017 and 2019.
The IMF’s China outlook is negative and the IMF expects the country’s debt to continue to rise in the coming years.
Chinese authorities have also pledged to slash the national debt by $1 trillion in 2023 to $7.2tn, but that has not yet been implemented.
According to the US Treasury Department, China is currently the world’s largest importer of US goods and services.
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