China’s Corporate Debt Levels Raise Alarms At IMF

The International Monetary Fund is raising new alarms over China’s mounting corporate debt, warning that unchecked growth could lead to economic trouble in the country and beyond.

Reports on Sunday (June 12) said the IMF spoke at a conference held in China over the weekend to raise its concerns about the mounting debt levels. Reports said the nation’s total debt is at around 225 percent of total gross domestic product, and 145 percent of that debt is held by corporations.

“Mounting corporate debt is a key fault line in the Chinese economy,” said the IMF’s first deputy managing director, David Lipton, at the conference. “Corporate debt remains a serious — and growing — problem that must be addressed immediately and with a commitment to serious reforms.”

According to the IMF, state-owned entities account for more than half of corporate debt in China but produce only 22 percent of economic output.

This isn’t the first time the issue of rising corporate debt in China has been highlighted. Last March, reports, citing unnamed sources, said the nation’s nonperforming loan levels were also on the rise. In response, those sources said Chinese officials have allowed banks to swap outstanding business debts for shares in the borrowers’ companies.

According to analysts, the nation is facing a 10-year high of bad corporate loans. They’re now at levels worth more than $614 billion.

Now, the IMF is warning that failing to act quickly to rein in corporate debt could prove detrimental both to China’s economy and the world’s.