There are unusually clear words chosen by the International Monetary Fund (IMF) in its latest analysis of the Chinese economy. It is “urgently” needed, that the leadership in Beijing will solve the debt problem of the economy, warns the governing body of the IMF, the so-called Executive Board. Otherwise, threatened an abrupt economic slump – with considerable consequences for the global economy
Such alarming recommendations are unusual for the guardians of global financial stability.. Finally, the country analyzes, which created the fund coordinated regularly with the governments concerned in long conversations and are usually sanded accordingly – for such an important economy like China that is even more true.
This is different this time, apparently because the economists development in China is very worried. The economy of the emerging economy is groaning under a huge debt, which threatens to collapse and could thus jeopardize economic growth for many years.
Higher solid than the Greek deficit in the euro crisis
is true that the public finances at first glance out. The IMF estimates that the central government will conclude this year with a budget deficit of three percent and the debt burden of the state is the equivalent of 20 trillion euros in just under 39 percent of economic output. Even Germany’s debt burden weighs at first sight difficult.
In the case of China, the official figures measure but only the debt of the central government, but not the financial situation of the provinces and municipalities that pay for the bulk of government spending. Your debts are often hidden outside the official budgets or specially created state-owned enterprises.
Referring a she, the picture suddenly looks very different. The IMF estimates that then the budget deficit of the past year could rise to ten percent. The investment bank Goldman Sachs even assumes that it was 15 per cent -. That is higher than the Greek deficit at the peak of the crisis
debt quadrupled in seven years
This is already an unpleasant image, far greater worry the IMF and other international economists but the debt of the company. Hold as calculated by the Fund debt worth about 145 percent of economic output.
In particular, the high rate at which the debt develops, makes observers worry. The consulting firm McKinsey has calculated that China’s private and public debt has quadrupled in just seven years. An obvious conclusion: Many companies and thus economic growth will be maintained with cheap government loans alive artificially.
The question of how Chinese companies can quit making debts, without the economy crashes. As the leadership in Beijing will solve this problem, the implications for German companies. Finally, China is one of the main drivers of global growth.
SOEs get particularly easy loans
The IMF believes that only profound reforms are a solution. “It must be a priority, credit growth to slow,” said about James Daniel, head of the IMF economists teams for the China-analysis. Although the debt of Chinese companies are at the moment still controllable, but at about 145 percent of economic output very high, no matter how measured.
The problem before especially the state-owned enterprises that are particularly easy to get from local governments and their control banks loans and in return provide many jobs. These state-owned enterprises tend to be far less productive than purely private companies and often ailing.
“First of all, must be decided at the highest level that weak companies are no longer funded,” says IMF expert Daniel. “Then, the guide needs a strategy for what to do with these companies.”
struggle for power between levels of government program
What the IMF then describes sounds like the work of the trust, which has settled after the end of the GDR state-owned enterprises. The long-term viable firms should restructure and – be completely privatized – where possible. however Fully ailing firms had to be settled and the state must stand up for the loans, fail the result.
That sounds like a very painful process, the considerable infighting will reignite between the different levels of government. Probably why Beijing scares despite all reform zeal previously afraid to go that way, although the crushing debt problems have long been discussed.
The central government should also fear the social consequences of such a selection process. The IMF recommends as well to provide appropriate funds with which redundant workers can be supported to maintain the social hardships as low as possible.
In the short term will be economic growth and weaker slump until 2017 to only six percent because people lose their jobs and companies are producing less; write the economists in their analysis. In the long term, however, such a strategy would strengthen the Chinese economy. “The short-term costs would by the long-term benefits more than offset” the authors say. And that would be at least a ray of hope – for China and for the global economy