IMF warns China on bad loans risk

29 July 2010

The International Monetary Fund (IMF) has warned China to be wary of its banks' potential exposure to bad loans.

A stimulus package has seen 9,600 billion yuan ($1,416 billion) of loans provided by Chinese banks, with the country now facing the challenge of managing its after-effects.

According to senior Chinese officials, there are serious default risks on more than 20 per cent of the 7,700 billion yuan in loans provided to local governments across the country, reports the Telegraph.

The IMF has now released a consultation paper which highlights "the need for regulatory and supervisory vigilance to manage any deterioration in credit quality and for increased transparency in lending to local government vehicles".

But the rest of the report was more positive, with praise for the country's handling of the financial crisis and its robust growth levels.

Earlier this month, the Financial Times reported that multinational banks operating in China face having to pay a two per cent payroll tax that will be used to fund union activities.

By Asim Shah

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