China's economic stability comes with hidden costs
Reuters
Remember when China’s economic crash was imminent and ready to take down the rest of the world with it?
Those concerns, which peaked with the 2015 crash of the Chinese stock market, have since receded, giving way to more subtle worries about the country’s sky-rocketing corporate debt levels — and an eventual day of reckoning.
This uneasy calm is reflected in the International Monetary Fund’s latest outlook on the world’s second largest economy.
"China continues to enjoy strong growth—projected at 6.7% for 2017. And the country has potential to sustain strong growth over the medium term," the Fund said its latest assessment of China’s economy, dated Aug. 15. "But to do so safely requires speeding up reforms to make growth less reliant on debt and investment."
The following six charts capture the dynamic of fragile, debt-fueled stability:
Stronger outlook for economic growth
IMF staff have become more upbeat on China’s growth outlook compared to last year’s report. Growth between 2017 and 2021 for the world’s second largest economy is now expected to average 6.4%, up from 6.0% in last year’s forecast.
Rising debt load
Stronger growth prospects come at the cost of higher debt levels, a key concern for China. The country's total non-financial sector debt—which includes household, corporate and government debt—will surge to nearly 300% of GDP by 2022, up from 242% in 2016. "This raises concerns for a possible sharp decline in growth in the medium term," the Fund says.
Time to deleverage
The IMF says China should seize on the strong growth backdrop to force reductions in corporate debt levels. "The Chinese government has started to take important initial steps to facilitate private sector deleveraging—credit growth is slowing and the large 'credit gap' is narrowing. These efforts should intensify," the Fund says.
See the rest of the story at Business Insider
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