I won’t fisk Chinese President Xi’s remarks at the opening of the 2017 World Economic Forum at Davos. As I see it the Reader’s Digest version is that it was his pitch for greater Chinese influence at the International Monetary Fund.
I want to draw attention to one sentence from his address:
Madame Christine Lagarde recently told me that emerging markets and developing countries already contribute to 80 percent of the growth of the global economy.
They also contribute substantially to total global debt. Here are the IMF comments on Chinese debt as reported by BloombergMarkets:
“Continued reliance on policy stimulus measures, with rapid expansion of credit and slow progress in addressing corporate debt, especially in hardening the budget constraints of state-owned enterprises, raises the risk of a sharper slowdown or a disruptive adjustment,” the IMF warned.
China’s total debt grew 465 percent over the past decade, according to Bloomberg Intelligence. Total debt rose to 247 percent of gross domestic product in 2015, from 160 percent in 2005, with corporate debt jumping to 165 percent of GDP from 105 percent.
A significant up-tick in capital outflows in recent months as the yuan weakened against the dollar adds to the worry list given the rapid debt build up. “These risks can be exacerbated by capital outflow pressures, especially in a more unsettled external environment,” the IMF paper said.
As I see it Chinese debt, malinvestment, overcapacity, import controls, and income inequality exacerbate all of the world’s economic problems. Without increased openness and reform in China it’s hard to see how phlegmatic global growth is remedied.
Will increased influence on China’s part in the IMF provide some headroom for making the necessary reforms? Or will it just allow the Chinese authorities to keep filling the punchbowl?
