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China strong but debt poses risks: OECD

dpa logodpa 21/03/2017

The OECD has slightly improved its forecast for China's 2017 annual economic growth to 6.5 per cent.

The ramping up of corporate debt, combined with the slowing of China's economy, poses "significantly heightened systemic risks" to the country's financial sector, the Organisation for Economic Co-operation and Development (OECD) says.

The OECD issued the warning even as it slightly improved its forecast for China's 2017 annual economic growth to 6.5 per cent, up from the 6.4 per cent it had predicted in November.

According to the OECD report, China's combined public and private debt exceeds 250 per cent of its gross domestic product (GDP), up from 150 per cent before the global financial crisis.

Corporate debt is "particularly high," at 170 per cent of GDP early last year, the report said.

The sharp rise in corporate debt was caused mainly by increased leverage of state-owned enterprises, which enjoy implicit government loan guarantees, the OECD said.

Some state-owned enterprises started missing bond payments last year - and an increase in such defaults could expose the banking sector to liquidity risks, the report said.

The OECD recommended that corporate debt risks "be immediately addressed" and that the government start reducing implicit guarantees to state-owned enterprises.

The government should aim to improve firms' productivity and to support a broader range of economic sectors, outside of new and high-tech industries, it said.

Nevertheless, China will continue to be "the major driver of global growth," the report said.

The Chinese government expects economic growth of about 6.5 per cent this year.

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