China’s credit growth has been “very fast” by global standards, said the organization.
China’s credit growth has been “very fast” by global standards and without a comprehensive strategy to tackle the debt overhang, there’s growing risk it will have a banking crisis or sharply slower growth or both, the International Monetary Fund said.
In a working paper, the IMF said Beijing should act quickly before the problem becomes systemic, and that the problems of both creditors and debtors needed to be addressed simultaneously.
The paper is one of multiple warnings the IMF has made about the Chinese economy this year.
The fund has projected the world’s second-largest economy would grow 6.6% in 2016, but said expansion would gradually slow to around 5.8% in 2021.
Corporate China is sitting on $18 trillion in debt, equivalent to about 169% of the country’s gross domestic product.
Rating agency S&P Global has estimated China’s banks will need as much as $1.7 trillion in capital to cover a likely surge in bad loans.
In its paper dated Oct 14, the IMF said “Just cleaning up the banks by moving bad loans off bank balance sheet and recapitalizing the banks, or allowing companies to go bankrupt without recapitalizing banks would not revitalize economic activity.”
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