‘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
“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