The International Monetary Fund (IMF) on Tuesday released its latest report on China’s economy and it contains some warnings about the need for China to bring its debt levels under control. The IMF predicts that at the current rate, China’s debt to GDP ratio will be close to 300% by 2022. The IMF argues that this is the number one risk to China’s economic growth prospects and could lead to a sharp correction in China’s economy. The IMF urges the Chinese Government to take action to reduce the growth in debt levels, particularly to so-called ‘zombie’ companies. The IMF also says that domestic consumers aren’t spending enough even while the corporate sector borrows and spends. China’s consumers are a population of savers, not spenders, in part as a buffer against the risk of falling ill and for their retirement. The IMF says that the Chinese Government spends much less than is required (at about half the average spent by advanced economies) on healthcare, education and pensions. Consumers in China, therefore, are reluctant to spend. China’s national savings is 46% of annual GDP, compared with just 20% for the average advanced economy. The IMF says that “Increasing Government spending on health and pensions would increase…private consumption by reducing households’ need to save.” An increase in spending by households would help lift China’s purchases of a variety of consumer goods, including wool clothing.
Full details available in the NCWSBA Weekly Newsletter for the week ending 18th August 2017. Available to NCWSBA members.