China’s massive debt is on a “dangerous” path, raising the risk of a sharp slowdown in growth, the IMF warned on Tuesday, urging Beijing to speed up structural reforms.
The International Monetary Fund, which has repeatedly warned China over its ballooning debt, said in a new report that the world’s second largest economy must turn toward a sustainable growth path.
“International experience suggests that China’s credit growth is on a dangerous trajectory, with increasing risks of a disruptive adjustment and/or a marked growth slowdown,” IMF experts wrote.
While the country’s near-term growth outlook firmed up, it is at the cost of “further large and continuous increases in private and public debt, and thus increasing downside risks in the medium term,” the report said.
The IMF maintained its forecast of 6.7% growth for this year, but the report warned that the country’s debt load could soar from around 235% of gross domestic product last year to more than 290% in 2022.
Debt-fuelled investment in infrastructure and real estate has underpinned China’s growth for years but Beijing has launched a crackdown over fears of a potential financial crisis.
The IMF recommended that Beijing press on with reforms to further boost consumption. “China has the potential to sustain strong growth over the medium term,” the report said.
“But to do this safely requires accelerating reforms to rebalance towards less credit-intensive growth, while using still-sizeable buffers to smooth the transition.”
