The International Monetary Fund (IMF) on Friday said the People’s Republic of China (PROC) must reduce its dependence on credit-stimulated investments and focus instead on non-government debts and other investments.
In the agency’s yearly review of China, it emphasized the Chinese government is focusing too much on high-growth targets which are unsustainable. Beijing must redirect its efforts towards reforms in government corporations and make the financial system stronger to moderate the adverse impact on the country’s economy.
China infused massive amounts of credit into its monetary system during the last few months as a strategy to lessen the effects of recession and to reach its growth objectives of 6.5 percent to 7 percent this year. An average of 6.5 percent is expected over a period of five years.
The IMF pointed at mounting risks of uncontrolled corporate non-payment if China fails to fix its economy right away. Officials from Beijing did not answer requests for a response to the IMF’s statement.
Some economic analysts said the attempts of the government to sustain growth at high levels generate inefficient investments along with financial risks that can affect China sooner or later as the world economy slows. Beijing is very careful in improving the economy since it is worried about labor turmoil and market instability with a change in leadership set in 2017.
IMF chief of strategy for China, James Daniel, believes the country has been quite successful in spurring progress in the service sector and driving private consumption forward. At the same time, foreign exchange reserves and the national budget are slowly diminishing.
The IMF report added that the evolution of the economy will be complicated and rough due to intensified downside risks.
IMF officials stated unless Beijing can revive its economic quickly, growth rates could decline by half to roughly three percent within the next few years. This could cause market turmoil abroad and undermine worldwide growth.
State-owned businesses account for approximately 55 percent of corporate arrears but these are only capable of generating 22 percent of economic output.
Most of the reform solutions offered by the IMF are based on the economic agenda of President Xi Jinping although he asserted that state firms should still be the core of the Chinese economy.