‘CHINA GROWTH LIKELY TO SLOW TO 6.5PC’

OECD warns of bal­loon­ing cor­po­rate debt, urges re­moval of im­plicit guar­an­tees to SOEs and other pub­lic en­ti­ties

New Straits Times - - Busi­ness -

BEI­JING

“In terms of risk, we be­lieve that in­ter­nally, the big­gest risk was the ac­cu­mu­lated and fast pace of growth of credit both in terms of shadow bank­ing and the bank­ing sys­tem,” said Al­varo San­tos Pereira, direc­tor of the coun­try stud­ies branch of the OECD’s Eco­nom­ics Depart­ment.

“I think it’s im­por­tant to in­ten­sify ef­forts to tackle this is­sue.”

China’s cor­po­rate debt was about 175 per cent of gross do­mes­tic prod­uct (GDP), one of the high­est in emerg­ing mar­ket economies, he said, with sta­te­owned en­ter­prises (SOEs) ac­count­ing for 75 per cent of that.

“One of our top rec­om­men­da­tions is to re­move im­plicit guar­an­tees to SOEs and other gov­ern­ment and pub­lic en­ti­ties,” said Mar­git Mol­nar, head of the China desk at the OECD’s Eco­nom­ics Depart­ment.

Such guar­an­tees had en­abled SOEs and lo­cal gov­ern­ment in­vest­ment ve­hi­cles to con­tinue ac­cu­mu­lat­ing debt, she said.

Fi­nan­cial risks in China are mount­ing be­cause of in­debted en­ter­prises, grow­ing non-bank ac­tiv­i­ties and enor­mous over­ca­pac­ity, said the re­port.

The OECD’s fore­cast for this year is in line with the Chi­nese gov­ern­ment’s growth tar­get of around 6.5 per cent this year, ver­sus last year’s 6.5-7.0 per cent range. The econ­omy grew 6.7 per cent last year, the slow­est pace in 26 years.

Ex­port vol­umes are ex­pected to grow 3.4 per cent this year and 3.3 per cent next year, up from 2.3 per cent last year due to in­creas­ing global de­mand.

Im­port vol­umes are set to grow 7.7 per cent this year and 6.0 per cent in 2018, down from 8.6 per cent growth last year, as im­ports used to process ex­ports fall. Reuters

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