The IMF does not foresee a financial crisis in China or the Asia-Pacific region anytime soon, despite strong concern over soaring debt levels.
Markus Rodlauer, IMF deputy director and mission chief for China, said that the country’s financial sector currently faced a number of key problems, chief amongst them excessively rapid growth in debt.
While China’s economic growth beat consensus expectations in the first quarter of 2017 with year-on-year expansion of 6.9%, Rodlauer noted that fiscal stimulus was a key driver behind the strong performance, and that leverage and debt in the financial sector had reached perilous, unsustainable levels.
The reason for this has been excessive reliance upon traditional growth sectors to support the economy, excessively rapid credit growth, inadequate regulation as well as a lack of budgetary constraints upon local government.
Despite these challenges Rodlauer said that the IMF does not anticipate a financial crisis in China any time soon, and remains “cautiously optimistic” about its future prospects following praiseworthy efforts to rebalance the economy in multiple areas.
Rodlauer’s remarks close follow the release of the IMF’s Global Financial Stability Report, which expressed strong concerns about risk in relation to excessively rapid growth in Chinese credit, which has continued unabated since the GFC.
IMF’s Asia Director Changyong Rhee said to Caixin that while debt levels remain high in many parts of Asia amongst both corporations and households, the region had developed more effective safeguards and buffers since the Asia Financial Crisis two decades ago, and there would be little likelihood of a regional financial crisis should global credit conditions tighten.