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Resolving China’s Corporate Debt Problem

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Resolving China’s Corporate Debt Problem

IMF,

5 min read
5 take-aways
Audio & text

What's inside?

Excessive corporate credit in China has led to widespread investment underperformance.

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Editorial Rating

8

Qualities

  • Analytical
  • Innovative

Recommendation

Intended to fuel domestic investment in the aftermath of the 2008 financial crisis, China’s corporate credit boom has instead led firms to lackluster performance and poor-quality investments. According to this incisive report from IMF experts, China’s policy makers and bankers must execute a disciplined growth strategy that, in the longer term, will benefit the Chinese economy. That includes creating frameworks for deciding which troubled companies to rescue and which to abandon, along with overhauling capital markets to promote more efficient investment. getAbstract recommends this rigorous analysis to economists, policy makers, financial executives and China watchers.

Summary

The global recession that followed the 2008 financial crisis reduced China’s external trade. GDP growth since then has rested significantly on internal demand, driven by corporate credit that expanded at a rate of 20% annually, on average, from 2009 to 2015. The continuation of this trajectory has become problematic. China’s business sector has acquired outsized levels of indebtedness, which has produced some growth. But investment inefficiencies and subpar profit performance have ensued. Such rapid debt growth has historical precedents: Other economies that experienced swift and steep increases...

About the Authors

Wojciech Maliszewski et al. are economists and analysts at the International Monetary Fund.

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