China’s unsustainable debt levels may trigger large-scale corporate defaults, OECD warns
- Corporate debt in China stood at 155 per cent of gross domestic product at the end of second quarter of 2018, much higher than other major economies
- In effort to contain the effects of US-China trade war, government has put deleveraging campaign on hold
Risks of large-scale corporate defaults are mounting in China, despite economic growth that “remains robust by international standards”, according to a new report.
The Paris-based Organisation for Economic Cooperation and Development (OECD) found that sagging domestic demand and weak export orders have led Chinese authorities to swiftly resort to stimulus measures, through expansionary monetary policy, tax cuts and infrastructure spending.
The OECD is an influential intergovernmental economic organisation with 36 member countries. China is not an OECD member.
While China’s stimulus, estimated at as high as 4.25 per cent of gross domestic product (GDP) this year, could lift growth in the short term, it could build up further economic imbalances down the road, the OECD said in its Economic Surveys: China 2019 report.
