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IMF sees US$1.3t in 'at-risk' Chinese company debt
[WASHINGTON] The International Monetary Fund said Wednesday that corporate China's balance sheets have deteriorated to the point that some US$1.3 trillion in borrowings is at risk of default.
It said that the financial health of Chinese companies has declined as profitability has sunk amid slower economic growth, and there is clear evidence that more companies are not earning enough to cover the interest owed on borrowings.
Such "debt at risk" has risen to 14 per cent of all debt at listed Chinese companies, triple the level of 2010, the IMF said in its Global Financial Stability Report.
That means that bank loans at risk amount to nearly US$1.3 trillion, it said.
"These loans could translate into potential bank losses of approximately 7 percent of GDP."
The IMF said that, given the buffers Beijing has built up for its banks, and still-strong economic growth, the huge number is recognized by authorities and is "manageable." Even so, it added, "the magnitude of these vulnerabilities calls for an ambitious policy agenda." The IMF said Beijing needs to address the massive corporate debt overhang and further strengthen financial institutions.