IMF cautiously welcomes drive by China to rein in credit leverage

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China’s credit to GDP ratio has risen to 200 per cent, reflecting a doubling since the 2008 financial crisis. Photo: Xinhua

Published: 11:56am, 4 May 2017Updated: 10:51pm, 4 May 2017

The International Monetary Fund has cautiously welcomed the latest efforts by Chinese authorities to reduce systemic leverage.

The Washington-based agency, however, said an important test would be whether Beijing can sustain the drive to contain excessive lending should the economy enter a downturn.

So far this year, Chinese regulators, most notably the China Banking Regulatory Commission, have published new regulations with the aim of reducing leverage in China’s financial system and increasing overall transparency. ga

“We have already seen some impact on credit growth and reduced leverage from the tightening measures. We’re optimistic that if sustained, these measures can help contain speculative credit and excessive credit growth in the system,” Sally Chen, IMF resident representative in Hong Kong told the Post in response to emailed questions.

Countries that have experienced such sharp acceleration in leverage... tend to see either a sharp growth contraction, and/or a financial crisis

Sally Chen, IMF resident representative in Hong Kong

The IMF has for many years warned of the increasing risks within China’s financial system, citing rapid borrowing which has pushed the credit-to-GDP ratio to 200 per cent, up from just under 100 per cent prior to the 2008 financial crisis.

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