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IMF assesses Chinese government debt to 50% of GDP
David Lipton, First Deputy Managing Director of the International Monetary Fund, made a notable comment during a press conference in Beijing on May 29th. He highlighted that if local government financing platforms are included within the broader concept of general government debt, the estimated total debt could reach nearly 50% of China's GDP. This "augmented" fiscal deficit was approximately 10% of GDP in 2012, according to his remarks.
The comments were made following the IMF’s annual policy consultation with China under the fourth review. Lipton emphasized that while this deficit is partially supported by land sales and the debt under the expanded definition remains manageable, it should be gradually reduced over time to ensure long-term fiscal stability. Key steps in this process include advancing tax reforms, realigning local government finances, reallocating resources based on spending priorities, and reforming local government investment and borrowing mechanisms.
The IMF team visited several Chinese cities between May 15 and 29, conducting its 2013 Fourth Policy Annual Consultation. According to their assessment, the IMF forecasts China’s economic growth to reach 7.75% this year. While recent credit expansion has contributed to global economic momentum, the growth rate is slightly lower than the 8% projected in 2012. Lipton noted that part of this slowdown reflects the impact of weaker global demand on Chinese exports, which have recently slowed due to broader economic conditions.
He also pointed out that China needs to transition from export-driven growth to a model focused more on domestic consumption. The country faces significant challenges, including the rapid rise in total social financing, which raises concerns about the quality of investments and their impact on liquidity. A growing share of this credit is not effectively regulated, leading to an over-reliance on investment-driven growth, particularly in real estate and local government projects.
Moreover, the financial health of both the real estate sector and local governments is under pressure. In addition, rising income inequality and environmental degradation underscore the urgent need for a structural shift in China’s economic model to ensure sustainable and inclusive growth.