China’s economy is reliant on too much debt and the enormous boom in credit risks leading to a new financial crisis, the International Monetary Fund (IMF) has warned.
GDP in the world’s second largest economy is set to grow by 6.7pc this year and 6.4pc next year, better than the 6.6pc and 6.2pc growth rates that the IMF forecast earlier this year.
Stronger global growth has given China a lift, as has extra government spending.
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Growth in China has been propped up by rapid increases in debt in recent years.
“Nominal credit to the nonfinancial sector more than doubled in the last five years, and the total domestic nonfinancial credit-to-GDP ratio increased by 60 percentage points to about 230pc in 2016,” the IMF found.
Those debts are expected to rise to almost 300pc of GDP in 2022.
“Sustainable growth - growth that can been achieved without excessive credit expansion - was likely much lower than actual growth over the last five years,” the IMF’s analysts said.
If credit was growing at a sustainable rate, GDP would have increased by an average of 5.3pc per year from 2012 to 2016, the IMF estimates, rather than the 7.3pc that it achieved.
“International experience suggests that China’s current credit trajectory is dangerous with increasing risks of a disruptive adjustment and/or a marked growth slowdown,” the report said.
Its analysts studied 43 large credit booms and found that almost every single one resulted in a sharp slowdown or a financial crisis.
“All credit booms that began when the ratios were above 100pc - as in China’s case - ended badly,” the researchers found.
Ended badly.......Really.....
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Debts have been financed in part through increasingly “complex and primarily short-term funding structures… extending beyond deposit funding to interbank markets and wealth management products, and via complex and interlinked networks of entities,” the report said.
The extra debt in recent years has also been used poorly, the IMF believes, as the credit extended to industrial sectors, state-owned enterprises and in certain regions has not been matched by a rise in the value added by those borrowers, “suggesting that they are using credit relatively inefficiently”.
In 2015-16, the IMF estimates, it took 20 trillion renminbi of new credit to raise nominal GDP by just 5 trillion renminbi.
The extent of any crunch could be limited by China’s current account surplus and its low level of external debts, while a low loan-to-deposit ratio in the country’s banks could also help to cushion any blow.
Nonetheless, the country is exposed.
The IMF pointed to the American savings and loan crisis of the 1980s, Japan’s 1997 banking crisis and the US and UK experience in the global financial crisis as examples of crashes that took place despite countries entering them in apparently strong positions.
Wow.....and it ends badly even for countries in Strong positions...........
LOL...Didn't you know that All that DEBT creates DEMAND......
Can I make a suggestion - stop commenting on any subject you don't have a clue about. Stick to the weather or discussing football games. Otherwise you will get pwned again.
Take risks - if you win you will become wealthy, if you lose you will become wise
Can I make a suggestion - stop commenting on any subject you don't have a clue about. Stick to the weather or discussing football games. Otherwise you will get pwned again.
Oh...So you're saying all that DEBT that is Created doesn't create Demand.......
As the negotiation of the Australia–China Free Trade Agreement (FTA) moves into what is hopefully its final phase, there is intense focus on how the investment chapter of the FTA will treat the access of Chinese state-owned enterprises to the Australian investment market.
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Over this period, Australia — rather than the US or any other country in the world — became the largest single ultimate destination for Chinese direct investment. Chinese investment in Australia was as big as in all of Europe.
Yes - what demand. Define it, don't post links like a schoolboy.
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2016 – a year of new records
2016 saw a record of 103 deals signed. Chinese private company investors accounted for a record 76 percent of all projects by number and nearly half of the total project value. Infrastructure investment accounted for a record 28 percent driven by multi-billion dollar investments in Asciano Ltd and the Port of Melbourne. Agribusiness grew from AUD 375 million in 2015 to over AUD 1.2 billion in 2016, the largest year on record. It was a record year for investment in Tasmania with agribusiness accounting for 100 percent of investment at AUD 280 million. Key findings
Globally Australia remains the second largest recipient of Chinese ODI with data showing over USD 90 million of accumulated new investment since 2007. 2016 saw the highest Chinese investment inflow to Australia since 2008 peak (AUD 15.36 billion/USD 11.49 billion in 2016). Chinese investment in Australia increased 11.7 percent from 2015 to AUD 15.36 billion. New South Wales continued to be the priority state for Chinese investments at 53 percent, on the back of commercial real estate, followed by Victoria at 25 percent. Commercial real estate remains the largest sector of investment at 36 percent. This year saw a significant change in real estate investment with residential development sites now accounting for 51 percent of value, a significant increase compared to just 27 percent in 2015. For the first time, energy overtook mining as a preferred ENR sector attracting AUD 1.149 billion. There are signs of a growing maturity by Chinese investors in the Australian market. The number of joint ventures is increasing with more repeat investments by established Chinese companies. This has set a foundation for growth in future investment.
There are already well over 500 large Chinese companies invested in Australia which continue to show interest in high quality, large scale investments and projects.
Australia has a strategic opportunity to grow and diversify its already strong economic partnership with China through structural reform.
Yes KPMG are school Boys......
Tiger Lily
16 Aug 2017, 10:37 PM
imf Warns about Lots of things Every year ! but they Never Nailed it yet
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