The Global Financial Stability Report issued by the International Monetary Fund (IMF) on 19 April has expressed strong concerns about the risks associated with ongoing excessively rapid growth in Chinese credit.
According to the IMF’s latest GFSR Chinese credit continues to expand at a breakneck pace, with the assets of China’s banking sector now as high as 400% of GDP.
Tobias Arian, Financial Counsellor and Director of the Monetary and Capital Markets Department of the IMF, said that credit growth on this scale is a potential danger, and that this danger will worsen the longer that loans proliferate and their scale expands.
Speaking to Caixin Arian said that loan growth in the Chinese economy has been extremely rapid ever since the GFC leading to high overall debt levels, and that government efforts to deleverage the economy by stifling loan growth and the shadow banking system have been inadequate.
Recent instability in China’s money markets serves to exemplify the fragility of China’s burgeoning yet opaque and heavily interconnected financial system.
Key risk areas highlighted by the report include the balance sheet mismatches caused by the excessive reliance of financial institutions upon wholesale finance, and the immense liquidity and credit risks posed by a simultaneous rise in dependence upon debt issuance and demand for redemptions.
The International Monetary Fund advocates the adoption of measures to curb breakneck growth in bank loans and corporate debt in China, in order to stifle excessively rapid credit growth and attendant risk.
The warning arrives just days after these issues were highlighted by the IMF’s World Economic Outlook and its Fiscal Monitor.