Credit still going to “zombie” firms, IMF warns China

The International Monetary Fund issued a report on Tuesday warning China of persistent debt-risks in certain sectors of its economy, Caixin Global reports, with unprofitable firms continuing to have access to risky credit despite the government crackdown.

The report said that the ‘riskiness’ of credit allocation – that is, how much credit risky firms get relative to less risky – had increased over the last decade for state-owned enterprises in sectors such as energy, raw materials and automobiles. Loss-making “zombie” firms have continued to be propped up with bad loans, but Beijing is now promising to let them fail.

The IMF also stressed that the problem was sectoral, with credit allocation improving in certain high-growth areas such as technology, healthcare and pharmaceuticals.

China’s debt burden has been a key focus of its recent economic policy, forcing the government to take severe measures to regulate and decontaminate the toxic financial industry. According to the Bank for International Settlements, in the third quarter of 2017 China’s nonfinancial sector was 257% of GDP, which is high in the international community.