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China's financial system harbours large risks, says IMF

From BBC - December 7, 2017

Rising levels of debt pose "large risks" to China's economy, according to the International Monetary Fund (IMF).

In its first report since 2011 on China's resilience to shocks and contagion, the IMF said it still had concerns over imbalances in the world's second-largest economy.

A stress test on China's banks found four-fifths were vulnerable.

Beijing should put less emphasis on growth, beef up regulation, and improve banks' finances, the IMF said.

China's "big four" banks had adequate capital but "large, medium, and city-commercial banks appear vulnerable", the IMF said.

The stress tests covered banks holding 171tn yuan ($26tn; 19bn) in total assets, and 27 out of the 33 tested needed to raise more funds, despite already complying with Basel III regulations on bank capitalisation.

The IMF warned in October that China's dependence on debt was growing at a "dangerous pace".

China has seen robust growth over recent years, driven by debt-financed investment and exports. But in order to maintain high growth rates, and protect jobs and social stability, local governments had extended credit and protected failing companies, the report said.

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