IMF calls on China to curb credit growth – Boursorama

 BEIJING, Aug. 12 (Reuters)  – The International Monetary Fund (IMF) said  Friday that China should curb credit growth, he  considers unsustainable over time, and urged  Beijing to stop financing companies in big  trouble. “The debt of enterprises in China  is still manageable but about 145% of GDP, it is  high regardless of the measurement  criteria,” said Daniel James, the head of  the IMF mission in China. The Fund therefore calls  on Beijing to address the roots of the credit  growth, in particular by waiving set high growth  targets and fiscal laxity, which particularly  benefits local communities and public enterprises.  “This requires an overall strategy and  decisive action to address the debt problems of  businesses,” said Daniel James. Public  non-financial companies account for half of bank  lending but only 20% of industrial production, the  report notes, suggesting that unsustainable public  companies should be liquidated and those still  viable restructured. Defects and rating downgrades  have increased recently in China and about 14% of  the overall debt concern companies posting profits  lower than the interest on their debt, the report  of the IMF, adding that credit growth is two times  the gross domestic product. The IMF expects  China’s growth will reach 6.6% this year, a  figure that is in the range of 6.5% to 7% planned  by Beijing. But “the practice of setting  annual objectives for growth (rather than  forecasts) had the effect of granting a  non-desirable priority to short-term support  measures and low quality,” the report says.  He added that if China continues to set annual  objectives for growth, they should be flexible,  for example through broad ranges, and sustainable.  To illustrate, he suggested that Beijing could set  a growth target of around 6% for 2017. The IMF  Chinese officials should pay less attention to  growth targets and more on other indicators more  specific, such as the growth of household income.  The IMF adds expect Chinese growth gradually  decreases over the years to return around 5.8% in  2021. (Sue-Lin Wong, Marc Angrand for the French  service) 

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