Washington-based fund says pursuit of growth at any cost risks sharp slowdown or financial crisis
China’s credit-fuelled economic strategy has been branded as dangerous by the International Monetary Fund in a strongly-worded statement warning that its approach risks financial turmoil.
The IMF used its annual health check on the world’s second biggest economy to stress that faster expansion in 2017 was coming at the cost of a jump in private sector debt and an increasing use of complex financial instruments.
While the IMF increased its forecast for Chinese expansion in 2017 from 6.2% to 6.7%, it stressed that this was the result of the authorities in Beijing putting a higher priority on hitting a growth target than on the quality of the economic output.
The Chinese government has pledged to double the size of the economy between 2010 and 2020 and has been prepared to see non-financial sector debt rise rapidly in order to achieve its aim. Total debt has quadrupled since the financial crisis to stand at $28tn (£22tn) at the end of last year.
The IMF said debt as a proportion of gross domestic product would rise from 235% to almost 300% by 2022. Previously, the Washington-based IMF – which publishes annual reports on its member countries – had said debt would peak at 270% of GDP.
“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, ” the IMF said.
With many of the advanced economies of the west struggling in the years since the financial crisis of 2007-09, China has acted as the growth engine of the global economy, accounting for more than half the increase in world GDP in recent years.
