The International Monetary Fund just issued a dire new warning to China, and it has many fearing a possible stock market crash in 2016.
The IMF warned that growing corporate debt in China is an intensifying problem. They continued saying the debt must be immediately tackled if the Asian nation wants to avoid harming itself and the global economy.
The IMF, an international organization of 189 countries headquartered in Washington, D.C., issued that warning over the weekend. The main goal of the IMF is to promote international financial stability and sustainable economic growth.
This is not the first time we’ve talked about China’s debt as a possible 2016 stock market crash catalyst…
China’s total debt of roughly 225% of gross domestic product (GDP) is not the immediate concern. It’s the country’s rising corporate debt, approximately 145% of GDP, that’s so troubling.
“Mounting corporate debt is a key fault line in the Chinese economy,” David Lipton, IMF’s first deputy managing director, said at a conference in China on Saturday. “Corporate debt remains a serious – and growing – problem that must be addressed immediately and with a commitment to serious reforms.”
“Company debt problems today can become systemic debt problems tomorrow,” Lipton said.
“And systemic debt problems can lead to much lower economic growth, a banking crisis, or both.”
A key characteristic of China’s escalating liability crisis is its state-owned enterprises (SOEs). The IMF calculates that these account for roughly 55% of corporate debt. However, they only produce about 22% of economic output.
Full article: Warning: New Stock Market Crash Indicators Flashing in China (MoneyMorning)