Beijing :Increasing debt, high dependence on government policies and financial aids, over-capacity production in the industrial sector are some of the factors that may have a negative impact on China’s economy; according to International Monetary Fund (IMF) report. IMF has indicated that if suitable economic developments are not done, China’s GDP could see a drop of 3%. Currently China’s GDP is less than 7% and for the current year it’s estimated to be at 6.5%.
IMF has published its annual review report on China – the world’s second largest economy. This report includes current threats faced by China’s economy, the unrest and its effects. A specific mention on China’s reliance on issuing credit for fuelling the economy is mentioned in this report, which states it to be a very dangerous precedent. It further indicates that government and corporate debts have exceeded beyond healthy limits.
The overall debt has risen to about 246% of its GDP. The largest contributor to this is the private sector debt, which constitutes more than 165%. It has been observed that this number has been consistently increasing in the last few years. Unable to bear the ever-increasing burden of debts, many companies are going bankrupt, which in turn has led to a decline in private investments. Since 2004, China has for the first time experienced a decline in its private sector investments for the months of June and July.
To accelerate its economy, Chinese government has been relying a lot on financial aids, which in turn has resulted in its debt to increase. At the same time, several boosts to government policies have negatively impacted the corporate sector. On the other hand, the ruling government is looking to reduce its investments in the public sector and is also not very keen to re-organize it. Additionally, the industrial sector is being bombarded with production, which is beyond its capacity; thus causing a slowdown in the country’s development.
In the report, IMF has explicitly stated that by 2020 China’s growth rate will be below 6% and beyond that it may slip further to 3%.