China needs to act urgently to contain financial risks, warns IMF

Washington/Beijing: – The International Monetary Fund (IMF) has warned that China needs to initiate immediate steps to avert the threats to economic stability. The Chinese economy’s debt burden has increased tremendously during the Coronavirus pandemic period, and small banks and local administrations are feeling immense pressure. At the same time, the credit rating of the private sector is also declining.’ Only last month, a think tank in the United States had warned that the Chinese economy would take a long time to return to its normal status.

On Friday, IMF released the report ‘Article 4’. The report claims that the Chinese economy will gain momentum in the second half of this fiscal and will attain a growth rate of 8% by the end of the year. But the IMF has predicted that the economy will start declining thereafter and growth rate will come down to 5% by the year 2025. The report points out that the production and demand in the Chinese private sector are declining.

The IMF has advised that China should reduce its infrastructure expenditure and make more extensive provisions to increase citizens’ spending power and social security. The report also says that a system making more money available in the hands of the low-income groups will benefit the recovery of the economy. The report also mentions the debt burden in the Chinese economy. The IMF has expressed concerns that only the government debt burden in the Chinese economy, can rise to 113% of the GDP by 2025.

While the Coronavirus is spreading rapidly in the world again, China claims to have controlled it. China is also consistently claiming that it has succeeded in controlling the pandemic and bringing the economy back on track have turned out to be successful. But the new information shows that the claims are fake. Only last week, it had been revealed that the transactions in the manufacturing sector, the mainstay of the Chinese economy, have slowed down. Before that, it has been consistently observed that the government undertakings are failing to service debts.

On the other hand, the Chinese government has stopped the aid to failing companies under the name of economic reforms. Therefore, there is a sentiment of concern in China investors, and the investments are declining steadily. Simultaneously, the Chinese companies are receiving strong blows successively on the international level, given the United States’ actions. All this affects the Chinese economy, and the warning issued by the IMF indicates the same thing.