IMF recommends Beijing to seize its current strong growth

Almaty. August 16. Silkroadnews – The IMF recommends Beijing to seize its current strong growth, Russian newspaper Kommersant reports.
Accelerating economic growth in China threatens a more significant than expected increase in the debt burden. In five years, its level could approach 300% of GDP (from the current 242%), according to new estimates by the International Monetary Fund. The fund recommends Beijing to step aside from supporting economic growth through cheap loans, and boost public sector reform to support economic development in the medium term – but so far the PRC is not in a hurry to reduce the major state-owned companies’ impact on the economy, the report said on Wednesday.
At the same time, it is noted that active support of economic growth contributes to raising risks to increase the debt burden of the private and public sectors in the medium term, the IMF said after consulting with the Chinese authorities.
The total debt burden of the non-financial sector (including corporations, households and the public sector) on the fund’s base forecast will grow from 242% of GDP in 2016 to 293% of GDP by 2022, that is around 20% of GDP higher compared to last year’s forecast, the publication notes.
In H1 of the year the Chinese economy grew 6.9%, which exceeded the analysts’ expectations (formal government guidance for this year is 6.5-7%). The IMF updated forecast says the country’s economy is projected to grow 6.4% per year on average over five years, not 6%, as it was expected earlier.
So far the growth is supported by consumption, as well as state investments in infrastructure and investments in real estate. However, in July, Beijing announced the modernization of the regulation of China’s financial system and establishment of a separate committee for financial control coordination to restrict access to credit and slow growth in the second half of the year. The IMF notes that the financial reform has led mainly to the growth rates on the interbank market (by 1.2 percentage points in a year), rather than to a reduction in lending to the industry.
At the same time, it is noted that, an increase in social spending could in part compensate for the restriction of lending and issuance, in particular, the fund recommends increasing spending on health care and pensions, as well as reducing income stratification through a steeper scale of progressive taxation. China still consumes too little, its share of savings remains significantly above the world average – 46% against 20%, the IMF says.