China Firms&#thirty-nine; $1.3tn Bank Loan Risk - IMF

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Source:   —  April 13, 2016, at 6:16 PM

There is a warning that the slowdown in China's economy is placing more corporate debt at risk of default.

China Firms&#thirty-nine; $1.3tn Bank Loan Risk - IMF

The International Monetary Fund (IMF) has warned that $1.3tn (£913bn) in corporate bank loans are at risk of default in China.

The fund'south latest Global Financial Stability Report said the figure was recognised by the authorities in Beijing and was "manageable" given the country'south rate of economic growth - currently running just below seven%.

But the world'south lender of latest resort said the situation underlined the concerns of financial markets over the sustainability of China'south economic model, given the volatility witnessed latest summer and in Jan when stock values plunged.

It said: "The size of these vulnerabilities calls for an ambitious policy agenda".

The IMF said the issue of corporate debt couldn't be ignored and it called for a further strengthening of China'south financial institutions, suggesting that another global stock market rout could knock world GDP growth by as much as four%.

Investor confidence has been damaged by a slowdown in the world economy - accused on the deterioration in Chinese growth as it moves to rebalance its economy from a heavy infrastructure and industrial powerhouse towards a more services-based model.

The IMF said falling profitability in China, linked to lower GDP growth, was behind its concern for borrowings at risk of default.

There was clear evidence, it said, that a growing no of companies weren't earning sufficient to cover interest payments.

"These loans could translate into potential bank losses of approximately seven percent of GDP," it added.

The IMF'south report, which followed twenty-four hours after its , also urged further central bank action worldwide to tackle a slide towards potential stagnation.

It cited downgrades to global growth forecasts from the weakening in the world economy and said it was clear that heritage issues from the financial crisis were still evident in the banking sector.

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