China can handle rising debts, says IMF executive

Level of borrowings way too high, but Zhu Min says Beijing has measures to resolve problem

PUBLISHED : Friday, 11 October, 2013, 12:00am
UPDATED : Friday, 11 October, 2013, 3:51am

China has room to deal with rising debt levels, which has become a "serious concern", International Monetary Fund deputy managing director Zhu Min said.

While debt accumulation by companies and local government was "way too high", Beijing had a lot of "policy buffer", including US$3.5 trillion in foreign reserves, to resolve the problems, Zhu, a former deputy governor at the People's Bank of China, said during a panel discussion at an IMF meeting in Washington on Wednesday.

The Chinese government had already taken action to curb borrowing, reducing the chances of an economic "hard landing", he said.

Premier Li Keqiang said last month the government was taking "targeted measures" to address the issue of local debt, and Finance Minister Lou Jiwei has said the authorities will regulate note sales to reduce credit risks.

Fitch Ratings estimates China's total credit, including off-balance-sheet loans, swelled to 198 per cent of gross domestic product last year from 125 per cent four years earlier, exceeding the growth seen before the banking crises in Japan in the 1990s.

Economists expect the Chinese economy, the world's second largest, will probably expand 7.6 per cent this year, the weakest pace of growth since 1999.

Zhu said the slowdown was positive because it would allow the country to rebalance its economy and reduce its reliance on foreign investment.

Chinese officials needed to prepare for the impact of the eventual withdrawal of monetary stimulus in the United States because the economy was much more interconnected with the global capital market than some believed, Zhu said.

External "shocks" explained 70 per cent of the changes in China's gross domestic product over the past few years, he said.

"I want to emphasise one particular point: don't think China is a closed market - China is not," Zhu said.

"That means the US exit from the non-conventional policies and global capital moves will also have an impact on China's capital movements."

Most US Federal Reserve policymakers said the central bank was likely to taper its bond purchases this year, even as they unexpectedly refrained from such a move last month, according to the minutes of their last meeting, released on Wednesday.