IMF warns China of risks in investment binge
With concerns rising over debt in the mainland's lower tiers of government, the agency expresses fears for economic stability
The International Monetary Fund has urged self-discipline on China's provincial and city governments, warning headlong investment fuelled by rapid credit growth may threaten economic sustainability.
The IMF's alert underscores the challenges facing the mainland's new leaders as they seek to lessen financial risk while keeping economic growth stable.
Excessive investment by local authorities in recent years has created serious overcapacity and lowered efficiency.
"Augmented" general government debt, including loans to local government financing vehicles, had risen to nearly 50 per cent of China's gross domestic product, the IMF's first deputy managing director, David Lipton, said yesterday in Beijing. The "augmented" fiscal deficit was estimated at 10 per cent of GDP.
While part of this deficit is financed through land sales, and augmented debt is still at a well-manageable level, it is important to gradually reduce the deficit over the medium term to ensure a robust and sustainable debt profile
"While part of this deficit is financed through land sales, and augmented debt is still at a well-manageable level, it is important to gradually reduce the deficit over the medium term to ensure a robust and sustainable debt profile," Lipton told reporters.
