A top International Monetary Fund official has urged China to deal with growing corporate debt levels.
Speaking at an economics conference on Saturday in Shenzhen, China, the IMF’s first deputy managing director David Lipton warned that China risked “serious detours” if it failed to do this while it was making its transition from a production to a consumption-oriented economy.
“Company debt problems today can become systemic debt problems tomorrow. Systemic debt problems can lead to much lower economic growth, or a banking crisis. Or both,” Mr Lipton said.
“Corporate debt remains a serious — and growing — problem that must be addressed immediately and with a commitment to serious reforms.
“With the rapid increase in credit growth in 2015 and early 2016, and the continued high rates of investment, the problem is growing.
“This is a key fault line in the Chinese economy. It is surely within China’s powers to address this problem. And it is important that China tackles it soon.”
He said China had made only “limited progress” tackling corporate debt.
He put China’s total debt at 225 per cent of gross domestic product and corporate debt at 145 per cent.
China’s debt levels were “very high by any measure”, he said.
The IMF has expressed concern about a possible $1.3 trillion of loans to borrowers that aren’t making enough money to cover the interest.
Tom Orlik, a Bloomberg economist, has estimated that China’s debt is now at 247 per cent of GDP with the country accumulating debt faster than any Group of 20 nation.
The People’s Bank of China warned in its mid-year work report last week that Chinese government’s measures to reduce debt levels and over-capacity could make it more difficult for companies to raise funds and might increase bond default risks.