IMF warns China of ‘dan­ger­ous’ debt load

The Myanmar Times - - International Business -

THE In­ter­na­tional Mon­e­tary Fund has warned china’s de­pen­dence on debt is grow­ing at a “dan­ger­ous pace” and it must act to head off a brew­ing cri­sis in the world’s sec­ond largest econ­omy.

The IMF also said the coun­try’s lead­ers should press on with vi­tal re­forms or risk a painful cor­rec­tion, adding that Bei­jing’s “un­sus­tain­ably high” growth goals were adding to the prob­lem.

While the coun­try has made progress in its at­tempts to re­cal­i­brate the driver of growth, the Fund said fail­ure to ad­dress struc­tural is­sues could de­stroy that work.

The IMF’s warn­ing comes weeks af­ter a global cen­tral bank watch­dog said China’s bank­ing sec­tor could be fac­ing an im­mi­nent debt cri­sis, fu­elling wor­ries a blowout could send tremors through the world econ­omy.

In an up­date to its World Eco­nomic Out­look, the IMF said “China con­tin­ues to make progress with the com­plex tasks of re­bal­anc­ing its econ­omy to­ward con­sump­tion and ser­vices and per­mit­ting mar­ket forces a greater role.

“But the econ­omy’s de­pen­dence on credit is in­creas­ing at a dan­ger­ous pace, in­ter­me­di­ated through an in­creas­ingly opaque and com­plex fi­nan­cial sec­tor.”

The IMF said China should rein in the credit growth and cut off sup­port to “un­vi­able” state-owned en­ter­prises, “ac­cept­ing the as­so­ci­ated slower GDP growth”.

“By main­tain­ing high near-term growth mo­men­tum in this man­ner, the econ­omy faces a grow­ing mis­al­lo­ca­tion of re­sources and risks an even­tual dis­rup­tive ad­just­ment,” it said.

China’s to­tal debt hit 168.48 trillion yuan (US$25 trillion) at the end of last year, equiv­a­lent to 249 per­cent of na­tional GDP, the Chi­nese Academy of So­cial Sci­ences, a top govern­ment think tank, has es­ti­mated.

And last month the Bank for In­ter­na­tional Set­tle­ments (BIS) – dubbed the cen­tral bank of cen­tral banks – said a gauge of Chi­nese debt had hit a record high in the first quar­ter of the year.

Its credit-to-GDP gap reached 30.1pc in Jan­uary-March, its high­est level ever and far above the 10pc level as­so­ci­ated with risks.

China is seek­ing to re­struc­ture its econ­omy to make the spend­ing power of its nearly 1.4 bil­lion peo­ple a key driver for growth, in­stead of mas­sive govern­ment in­vest­ment and cheap ex­ports.

But the tran­si­tion is prov­ing painful as growth rates sit at 25-year lows and key in­di­ca­tors con­tinue to come in be­low par, weigh­ing on the global out­look as the Chi­nese econ­omy is a key driver for the world. –

‘The econ­omy’s de­pen­dence on credit is in­creas­ing at a dan­ger­ous pace.’ IMF World Eco­nomic Out­look

Newspapers in English

Newspapers from Myanmar

© PressReader. All rights reserved.