IMF warns China of ‘dangerous’ debt load
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