IMF Warns China To Get Control Over Debt
According to James Daniel, the China’s mission chief for IMF, the medium term outlook of not looking good due to the high, increasing corporate debt. He said China, the world’s second-biggest economy, needs to seriously address the issue.
China’s debt stands around $25 trillion or 254 percent of GDP. Although high, it’s similar to many indebted countries. For instance, the U.S. has a similar debt level. However, what’s concerning is that China’s debt mountain has increased at an alarming rate – quadrupling between 2007 and 2014.
This has investors and worldwide institutions alarmed.
According to Julian Evans-Pritchard, a Capital Economics economist, investors have every reason to feel some concern. After all, dealing with an unmaintainable increase of debt is one of the biggest long-term challenge policymakers have to deal with.
The lending spree was set up to provide China with the boost the country to keep up its economic growth after the 2008 financial disaster. While it wasn’t a bad thing, it encouraged companies to borrow so they would keep investing and building to ensure the economy would continue moving.
However, China’s issue is this: the credit isn’t allocated correctly, and it’s producing weaker returns. International economic organization and rating agencies have warned China officials about this problem of increasing debt. According to the IMF, the country needs to tackle the zombie debt, recognize what the losses were and forget the bad loans.
China has begun to get tough on its state-owned heavy industry giants. In fact, Beijing officials said it would cut $1.8 million steel and coal jobs and invest another $15.3 billion in training and restructuring to help laid-off workers find new jobs.
According to the IMF, Chinese must increase the effort to other industries and put its attention on the economy’s more creative and product parts.