China’s efforts to become the largest economy in the world could be undone by its rapidly rising debt.

As reported by James Kynge, the Financial TImes Emerging Markets Editor and former China Bureau Chief, China’s current national debt, which includes state, business and household debt, is worth 240 percent of its GDP.

Kynge reports that since China implemented a stimulus policy in the wake of the 2008 recession, local governments have borne the financial burden of constructing thousands of development projects, including close to 10,000 sq/km in new urban precincts, several ghost towns, and the world’s second largest building.

With China’s debt rising faster than economists’ projections, the interest on that debt is also growing at a staggering rate. According to estimates by Standard Chartered, 32 percent of new credit established in China is used to pay interest on existing debt.

Kynge believes that, for all of the emphasis on increasing Chinese frugality (and away from a life of luxury), policymakers will have their work cut out for them for sometime.

Photo: money.163