The International Monetary Fund (IMF) announced Monday that it has raised its forecast for China’s economic growth for this year by 0.3 percentage points to 6.5 percent on expectations of continued government stimulus.
While growth has been stronger than anticipated, the Washington-based fund warned that a credit-fueled recovery could only be storing up deeper problems, Bloomberg reports.
“Continued reliance on policy stimulus measures, with rapid expansion of credit and slow progress in addressing corporate debt, especially in hardening the budget constraints of state-owned enterprises, raises the risk of a sharper slowdown or a disruptive adjustment,” the IMF said.
China’s economy grew 6.7 percent over the first three quarters of 2016, within the government’s targeted 6.5-7 percent range.
But much of the rebound has been attributed to a deluge of cheap credit unleashed by state-run banks at the government’s behest.
China’s total debt grew 465 percent over the past decade, according to Bloomberg Intelligence.
Total debt rose to 247 percent of gross domestic product in 2015, from 160 percent in 2005, with corporate debt jumping to 165 percent of GDP from 105 percent.
A significant up-tick in capital outflows in recent months amid a weaker renminbi adds to the worry list given the rapid debt build up.
“These risks can be exacerbated by capital outflow pressures, especially in a more unsettled external environment,” the IMF was quoted as saying in its latest outlook report.
For 2018, the IMF maintained a previous forecast made in October for 6 percent economic expansion in China.
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