IMF issues stern warning to China over its debt levels

The International Monetary Fund (IMF) has urged China to take action over its growing debt pile during its assessment of the country’s economy earlier this week.

David Lipton, deputy managing director of the IMF, said: “Corporate debt, though still manageable, is high and rising fast, addressing the corporate debt problem is imperative to avoid serious problems down the road.”

Andrew Tilton, an economist at Goldman Sachs, speaking to Funds Global Asia earlier this year, said that China’s debt-to-GDP ratio had risen to around 250%, “the largest debt build-up ever in the history of the world”.

The IMF said that China has “to harden budget constraints, especially on [state-owned enterprises],” adding that, “credit growth needs to slow substantially to stabilise the credit/GDP ratio”.

The fund cited progress on rebalancing China’s economy away from heavy industry towards consumption and services but called for more aggressive efforts at deleveraging.

At Funds Europe recent Brexit event, Phillip Saunders, co-head of multi-asset at Investec Asset Management, said that while the UK referendum on staying in the EU might be important to the British, on a world stage, the prospect of the world’s second largest economy China having a hard landing is of greater importance. The IMF’s mission to China underlines this point.

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