China’s real estate, debt crises prompt IMF warning of widening economic damage

Report by International Monetary Fund suggests China’s economy could be facing even more dire straits, and a ‘sharp repricing of assets’ is possible

IMF’s assessment comes as calls for reform are growing not only externally, but inside China as well

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A deepening property-sector downturn in China weighs heavily on market sentiment, according to the IMF. Photo: AFP

Published: 5:30pm, 10 Oct 2023

Property and lending crises in China could leech further into the domestic economy and beyond, the International Monetary Fund (IMF) said on Tuesday, underscoring the urgency of government efforts to resolve them.

Developer debt and the failure of local government financing vehicles (LGFVs) to pay back loans could “unravel” optimism about a “soft landing of the global economy” and an easing of inflation, the IMF said in its semi-annual “Global Financial Stability Report”.

The report by the international financial institution comes at a time when calls for reform are growing not only externally, but internally as well.

“In China, weakening economic momentum, a deepening property-sector downturn, and growing strains on local-government financing weigh heavily on market sentiment,” the report said. It also warned of a “sharp repricing of assets” without action.

“Continued turmoil in the property sector could spread to the financial sector and to local governments with significant dependence on property-related revenues, weighing on the already-weakening recovery,” the IMF added.

A pre-pandemic expansion in property has cratered over the past few years, exposing developers’ debts and lowering home prices.

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