Daily Management Review

The IMF Says The Debt Problem In China Needs To Be Fixed


08/16/2017




The IMF Says The Debt Problem In China Needs To Be Fixed
The International Monetary Fund is issuing a strong warning over growing debt in the world's second-largest economy – China, even as the funds lauds the growth in the Chinese economy and says that the economy is looking good enough for the organization to raise its outlook.
 
From the earlier prediction of 6.2 percent, the IMF has revised its growth forecast for the Chinese to 6.7 percent for 2017 as the organization issued its annual review of China on Tuesday. Compared to its previous estimate of 6 percent, the organization also said it expects China to average 6.4 percent growth between now and 2021.
 
Still, things were far from peachy for the Chinese economy, the organization warned.
 
"The growth outlook has been revised up reflecting strong momentum, a commitment to growth targets, and a recovering global economy," the IMF said. "But this comes at the cost of further large and continuous increases in private and public debt, and thus increasing downside risks in the medium term."
 
The report said that in order "to accelerate needed reforms and focus more on the quality and sustainability of growth," what Beijing needs to do is to seize its current strong growth momentum.
 
And working to tackle the debt issue is at the top of that list. Soaring up from around 240 percent last year, the IMF sees China's non-financial sector debt to hit nearly 300 percent of GDP by 2022 going forward.
 
Unless China tackles deeper structural issues, debt-fueled growth isn't sustainable in the long run and is potentially is a short-term solution at best, the IMF warned.
 
Urging China to find a better balance between supporting growth and controlling risks to the economy and to rein in its old model of opening credit lines to fuel investment, experts have been sounding the alarm bell over this issue for years now.
 
Down from 1.54 trillion yuan in June, 825.5 billion yuan (about $123.44 billion) in new loans in July was extended by Chinese banks. at 1.22 trillion yuan last month versus 1.78 trillion yuan in June was the outstanding total social financing — a broad measure of credit and liquidity.
 
China economist Julian Evans-Pritchard at Capital Economics wrote that part of the drop is seasonal, and it's "masking an uptick in underlying credit growth". Outstanding bank loans and total social financing, both rose roughly 13 percent in July versus the same period last year, and a better way to look at credit creation is to gauge growth in both those areas.
 
China needs to increase productivity in inefficient sectors, including those featuring China's "zombie" state-owned enterprises and needs to address overcapacity, aside from dealing with debt, the IMF also said.
 
However, the IMF report on China was not all about red flags only. China’s efforts to stabilize fluctuations in the yuan, to better manage capital outflows, to control a run-up in corporate debt and to boost oversight and regulation of financial sector risks were applauded by the IMF.
 
(Source:www.cnbc.com) 






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