The International Monetary Fund Tuesday, April 18 raised its economic growth forecast for China for this year and next but warned of serious longer-term problems unless it reduces its reliance on credit, AFP reports.
The IMF's forecast for 2017 was 6.6 per cent, compared to a 6.5 percent estimate in January, and 6.2 percent next year compared to 6.0 percent.
"The upward revision...reflects the stronger-than-expected momentum in 2016 and the anticipation of continued policy support," the fund said in its latest World Economic Outlook.
"The medium-term outlook, however, continues to be clouded by increasing resource misallocation and growing vulnerabilities associated with the reliance on near-term policy easing and credit-financed investment."
China faces a "daunting challenge of reducing its reliance on credit growth" and the consequences of failing to do so are serious, it added.
"A dilution of financial regulation may lead to stronger near-term growth but may imperil global financial stability and raise the risk of costly financial crises down the road," the fund said.
The warning came a day after China announced its economy grew an annualised 6.9 percent in the first quarter of 2017, beating expectations.
Analysts say cheap credit has bolstered the construction sector since last year, attracting savers and speculators who have pushed up housing prices in big cities and accelerated manufacturing activity.
Beijing has said it wants to reorient the economy away from relying on exports and debt-fuelled investment towards a consumer-driven growth model, but the transition has proved challenging and led to slower expansion in recent years.
The economy grew 6.7 percent in 2016, its slowest rate since 1990.
China's total debt hit 168.48 trillion yuan ($25 trillion) at the end of 2015, equivalent to almost 250 percent of national GDP, the Chinese Academy of Social Sciences said in its most recent estimate.