The International Monetary Fund, an international organization working to improve the economies of its member countries, gave China a warning and urged the Asian giant to fix its debt problems.
In an annual review released on Tuesday, the IMF said it expects China to gain an average of 6.4% growth by 2021. This is comparatively higher than the organization’s previous estimate of only 6%.
The revision is reported to be due to China’s strong momentum, and the recovering global economy. The IMF, however, added that this “comes at the cost of further large and continuous increases in private and public debt.”
The organization also reminded China that debt-fueled growth is only a temporary solution unless deeper structural issues are tackled. The IMF went on to state that the country’s credit growth is on a “dangerous trajectory.”
“Credit to certain sectors (industrial), firms (SOEs), and regions (Northeast) is significantly higher than their value added, suggesting that they use credit relatively inefficiently,” said the IMF.
In simple words, the IMF is advising the giant country to alter its economic strategy and to put efforts on developing a more self-sustaining and a longer-term growth form.
China is set to have a major reshuffle this fall, and it is yet to be seen whether it will heed IMF’s advice.
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