IMF urges China to reduce corporate debt risk made worse by heavy pandemic lending
- Chinese financial authorities should stop providing such easy access to capital, especially to ‘riskier borrowers’, International Monetary Fund says
- China made it easier for businesses to borrow during the pandemic to keep them and the economy afloat, and loans went to many struggling firms
The International Monetary Fund on Tuesday urged China to further address its high corporate debt levels that have resulted from the easy monetary policy put in place during the coronavirus pandemic.
The IMF, while applauding the Chinese government’s swift public health measures, said it did so at a cost.
“China, of course, has re-emerged from the crisis more quickly than any other country. The measures that were taken were very quick and very effective,” said Tobias Adrian, financial counsellor at the IMF. “But the measures that were deployed have led to [a] further increase in leverage and vulnerabilities.”
China’s financial authorities, the IMF financiers said, should move away from providing easy access to capital to rein in corporate debt risks.
According to an IMF report on global financial stability released on Tuesday, the vulnerabilities in China were particularly “driven by riskier corporate borrowers”.