IMF asks China to address high corporate debt levels due to excessive lending during COVID-19 pandemic

The International Monetary Fund (IMF) on Tuesday urged China to further address its high corporate debt levels resulting from its monetary policy during the COVID-19 pandemic.

According to South China Morning Post (SCMP), Tobias Adrian, a financial counsellor at the IMF said that China's measures to overcome the pandemic have led to a further increase in vulnerabilities.

According to an IMF report on global financial stability released on Tuesday, 'riskier corporate borrowers' had emboldened China's vulnerabilities as the country made it easier for businesses to borrow during the pandemic to keep them and the economy going.

This led to a rise in China's debt-to-GDP ratio to 266.4 per cent at the end of the third quarter in 2020, up from 245.4 per cent from the previous year, according to the Chinese Academy of Social Sciences (CASS), a State Council-affiliated think tank.

China's financial authorities should move away from providing easy access to capital to rein in corporate debt risks, said IMF financiers.

More than two-thirds of the compes that had two years of operating losses before the pandemic had credit spreads that implied a relatively low risk of default, SCMP reported citing the report. The spreads were distorted by the implied government guarantee, it said.

In 2020, Chinese state firms defaulted on 71.8 billion yuan (USD 11.1 billion) worth of debt, accounting for 51 per cent of all defaults and the largest default total for state firms, informed the National Institution for Finance & Development (NIFD).

Meanwhile, Chinese authorities have recently signalled a tightening in monetary and fiscal policy to focus on the containment of debt risks; however, the approach has been moderate.

( With inputs from ANI )