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Debt looms over China, says IMF study

China’s booming economy continues to propel Asia and drive worldwide economic growth. The International Monetary Fund expects China’s economy to expand by 6.8 per cent this year due to stronger recorded growth in the first half.

If realised, the growth rate will outdo last year’s 6.7 per cent, which was China’s slowest pace of expansion since 1990. But China’s slower transition from an investment-based economy to a consumption-based one will come at the cost of further large increases in debt. The pace of China’s credit growth has alarmed analysts in recent years.

The uptick in growth is expected to result in greater debt levels over the long term, raising the prospect of a sharp growth slowdown in China. Since the global financial crisis in 2008 its debt load as a percentage of gross domestic product has grown more than 10 per cent per year on average.

Elsewhere in Asia, the fund raised Japan’s growth forecast to 1.5 per cent this year from one per cent last year. But it warns a shrinking labor force and weak inflation will be a drag on the country’s prospects. In India, the growth momentum has slowed due to the impact of a currency exchange initiative and the launch of GST.

In the rest of emerging markets and developing Asia, growth is expected to be vigorous.