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IMF Raises China Growth, Warns on Debt

IMF Raises China Growth, Warns on DebtIMF Raises China Growth, Warns on Debt

The International Monetary Fund on Monday raised its growth forecast for China but warned rising debt that has prompted concern about the country’s finances increase the risk of a sharper slowdown.

The world’s second-largest economy should expand by 6.5% this year, the IMF said in a report. That is up by 0.3 percentage points from the agency’s last forecast in October, AP reported.

However, that growth is supported by heavy government spending and rapid expansion of credit, which “raises the risk of a sharper slowdown,” the agency said.

The report adds to mounting warnings about the economic drag of debt that has soared since the 2008 global crisis as Beijing used infusions of credit to shore up growth.

China’s growth held steady at 6.7% in the three months ending in September, supported by government spending and a boom in real estate sales and bank lending. Private sector forecasters expect that to decline as regulators tighten controls to cool surging credit and housing prices, which they see as a financial risk.

Chinese leaders are trying to nurture more sustainable growth based on consumer spending instead of trade and investment but have repeatedly pumped credit into the economy to avert an abrupt downturn and politically dangerous job losses.

China’s total debt has risen to the equivalent of 250% of gross domestic product, high for a developing economy. That has prompted warnings of a possible financial crisis or a drag on growth.

“Continued reliance on policy stimulus measures, with rapid expansion of credit and slow progress in addressing corporate debt, especially in hardening the budget constraints of state-owned enterprises, raises the risk of a sharper slowdown or a disruptive adjustment,” the IMF said.

The agency said official Chinese stimulus might lead to even stronger performance than forecast, which might help boost growth for the country’s trading partners. But it warned that might be disrupted if governments resort to “protectionist trade policies”.

Meanwhile, China’s economy will face more pressure and problems in 2017, with changes in global politics and challenges to economic rules adding further uncertainty to the outlook, Premier Li Keqiang said Sunday.

Li said China will ensure the nation’s economy runs smoothly and will improve the quality and efficiency of growth, according to a statement published on the government’s website.

 

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