The IMF is concerned that using debt-financed investment to boost growth is unsustainable.
Changyong Rhee, director of the IMF’s Asia and Pacific Department, warned of the “dangers of excessive leverage” that were highlighted by China’s recent stock market crash and the risks linked to using investment and credit to lift the economy.
As per the Telegraph:
“Since the financial crisis, growth in China has relied heavily on investment and credit, with the biggest build-up of leverage going to state-owned enterprises, the real estate and construction sectors, and weaker corporates. This created growing vulnerabilities which — while still manageable — cannot continue to accumulate.”
That being said, the growth prospects for China (compared to the rest of the world) are still bloody good. The IMF believes China will expand by 6.8% this year and 6.3% in 2016 as the economy moves towards consumption-driven output.