The International Monetary Fund has warned that China should prioritise its financial stability above development goals, as the pursuit of regional growth targets and helping firms avoid heavy job losses have led to a surge in debt, particularly at local government level.
The IMF said two concerns remain in the country's financial sector when compared to its previous study in 2011 – high credit growth and the rapid expansion of wealth management products.
It said reining in excessive credit growth will require less emphasis on high GDP projections in national plans that have spurred local governments to set high growth targets.
To reach the targets, companies are more willing to take risks because of the mindset that the government will bail out troubled state-owned enterprises.
The IMF specifically warned that the rapid development of innovative financial products for investors could pose grave risks as they can emerge quickly and rapidly become large and popular, and potentially a systemic risk.
In response, the mainland's central bank said the report did not reflect the whole picture. It said its financial system is able to fend off risks, adding that the report was objective and pertinent. (Reuters)