IMF urges China to tackle ‘high’ corporate debt immediately
China has accumulated debt faster than any Group of 20 nation over the past decade, climbing to 247 per cent of gross domestic product, analyst says
The International Monetary Fund’s second top official urged China to take immediate steps to tackle rising corporate debt or risk “dangerous detours” during the country’s transition to a consumption-oriented economy.
“Corporate debt remains a serious – and growing – problem that must be addressed immediately and with a commitment to serious reforms,” David Lipton, the IMF’s first deputy managing director, said in the text of a speech to an economics conference on Saturday in Shenzhen.
The comments build on other recent warnings from the global crisis lender about China’s debt, including an estimate of a possible US$1.3 trillion in loans extended to borrowers that don’t have sufficient income to cover interest payments. China has accumulated debt faster than any Group of 20 nation over the past decade, climbing to 247 per cent of gross domestic product, according to Tom Orlik, an economist for Bloomberg Intelligence.
Premier Li Keqiang said in March that the country may use debt-to-equity swaps to cut the leverage ratios of Chinese companies. An IMF staff report in April said China’s plan to rid banks of bad loans could backfire, allowing debt-laden “zombie” firms to stay afloat and creating conflicts of interest for bankers.