Fears that China risks being the cause of a fresh global financial crisis have been highlighted by the International Monetary Fund in a hard-hitting warning about the growing debt-dependency of the world’s second biggest economy. The IMF’s health check of China’s financial system found that credit was high by international levels, that personal debt had increased in the past five years, and that the pressure to maintain the country’s rapid growth had bred an unwillingness to let struggling firms fail. While praising China’s president, Xi Jinping, for his commitment to improving financial security, the IMF said reforms by Beijing in recent years had not gone far enough. “The system’s increasing complexity has sown financial stability risks,” the IMF’s assessment said. “Credit growth has outpaced GDP growth, leading to a large credit overhang. The credit-to-GDP ratio is now about 25% above the long-term trend, very high by international standards and consistent with a high probability of financial distress. “As a result, corporate debt has reached 165% of GDP, and household debt, while still low, has risen by 15 percentage points of GDP over the past five years and is increasingly linked to asset-price speculation. The buildup of credit in traditional sectors… Read full this story
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