China's Debt Interest Now Eats 19.2% of Its Budget, Above U.S.

China will spend 19.2% of its central government's general public budget on debt-servicing payments this year, up from 12% in 2014, according to new Conference Board estimates cited by the Financial Times. That share now exceeds the equivalent U.S. figure and is growing faster than any other major category of Beijing's spending.

The numbers mark a quiet fiscal turning point for the world's second-largest economy. A separate report earlier this year from the Center for Strategic and International Studies found that 19% of Beijing's spending goes to interest on debt — more than the 14% of the U.S. federal budget consumed by interest costs, though still below Japan's 25.6%.

How fast has China's interest bill grown?

CSIS calculates that China's spending on interest payments skyrocketed 341% between 2013 and 2025. No other major budget category comes close over that span:

• Total central spending: up 102%
• Social security and employment: up 207%
• Science and technology: up 137%
• Defense: up 141%

The U.S. picture is grim by its own standards. American debt-interest spending has surged roughly 390% since 2013 to $1 trillion — a sum that now tops the Pentagon's budget. But the two economies have been diverging in ways that matter for future growth and indebtedness.

Why does the comparison favor the U.S.?

The U.S. economy is accelerating, helped by the AI boom. Inflation remains high, but resilient consumers keep spending. Unemployment is low enough to signal full employment, and stock markets sit at or near record highs.

China's GDP, by contrast, is decelerating and on pace to undercut its annual target of 4.5%–5%. Export-facing sectors are growing quickly, but trade partners are raising barriers. Chinese consumers remain reluctant to spend, investment is weak, the property sector is still digging out from an epic crash, and Chinese stocks have been anemic.

The debt math compounds the divergence. According to the International Monetary Fund, China's general government gross debt hit 107% of GDP this year, up from 41% in 2015, and is on a path to reach 124% in 2030.

How bad is China's broader debt load?

A wider measure including the private sector looks worse. Capital Economics estimated earlier this year that China's total debt-to-GDP ratio, excluding the financial sector, has doubled since 2010 and now tops 300%. In the U.S., total public and private debt last year was about 265% of GDP — down sharply from pandemic-era highs.

A key driver is state-directed lending. Beijing has steered state banks to finance priority industries such as electric vehicles, robotics, artificial intelligence and renewable energy. Under pressure to lend, many loans went to questionable borrowers. Business debt has doubled since 2019, while revenues are only 30% higher. Creditors continue to roll over loans to keep struggling firms afloat, even as nearly a third of them are losing money.

What does it mean for Beijing's growth model?

China's state-led growth model now looks like it's running out of steam, and the rapidly expanding mountain of debt is a warning sign, as local governments often boost favored industries with low-cost loans.

Mark Williams, chief Asia economist at Capital Economics, was blunt in a May note: "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. But the product of a credit boom that has been underway for 18 years is a banking system propping up unproductive firms, widespread losses across industry, and entrenched overcapacity."

China's debt boom has not only hit diminishing returns — it has become a drag on the economy it was meant to sustain.