China's Economic Growth Goals and Financial Stability Appear to Conflict


The International Monetary Fund said that China should put the importance of financial stability above its development goals and the rise in debt due to its pursuit of regional growth goals and its efforts to avert massive unemployment, especially the debt levels of local governments.

The IMF said in its report released on Wednesday that there is a lack of coordination and systematic risk analysis. The IMF also proposed the establishment of a financial stability subcommittee composed of a central bank and three financial regulators.

The IMF said that expansionary monetary and fiscal policies aimed at promoting employment and economic growth have led to soaring debt for businesses that seek to avoid a collapse and for the prevention of faltering local government entities.

"Preventing a sharp drop in local employment and meeting local economic growth targets is obviously the main goal, which conflicts with other policy goals such as financial stability," the IMF said.

"Regulators should emphasize that financial stability gives priority over development goals," the fund said.

The International Monetary Fund quoted the BIS as saying that the ratio of China's credit to gross domestic product (GDP) is at a very high level as measured by global standards, and the possibility of a financial crisis is very high.

 


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