THE International Monetary Fund (IMF) on Friday said China needed to slow its unsustainable credit growth and stop financing weak firms.

    “China’s corporate debt is still manageable, but at approximately 145 percent of GDP, it is high by any measure,” said James Daniel, IMF Mission Chief for China, in the fund’s annual review of the country.

    The IMF has urged China to tackle the root causes of its credit growth risk by easing back on unsustainably high growth targets and lax budget constraints, particularly on local governments and State-owned enterprises.

    China’s non-financial State-owned enterprises accounted for half of bank credit but only a fifth of industrial output, the report said, suggesting non-viable SOEs be liquidated and viable ones restructured.

    Defaults and downgrades have increased and around 14 percent of debt was held by firms with profit levels below their interest payments, the report said, with credit growth growing twice as fast as nominal GDP.

    The report reflected views provided by Chinese policymakers who agreed with the IMF that corporate debt had increased “excessively.” However, they argued China’s large pool of domestic savings, banking system buffers, and continued equity market development would ensure a smooth adjustment, the report said.

    China’s banking regulator “disagreed” with the IMF’s assessment of the country’s corporate debt-at-risk, citing significantly lower estimates based on their own calculations, according to the report.

    (SD-Agencies)