China's policy stimulus may distort its economy

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      Beijing authorities have stepped up fiscal stimulus to avoid an accelerated slowdown in China, the world's second largest economy, which is currently facing weakening domestic demand and a trade war between China and the United States.
The Chinese government allowed local governments to issue 2.15 trillion yuan ($320.6 billion) of local government bonds to support infrastructure projects, a 59% jump from last year.
S& P's global rating last year estimated that the implicit debt of local governments could be as high as 40 trillion yuan.
"Infrastructure stimulus may boost growth in the forecast period, but it may also lead to further imbalances and inappropriate capital allocation, so medium-term growth may weaken," the OECD said in its latest China Economic Survey.
"These stimulus policies run the risk of a renewed rise in corporate debt, which in general will reverse the progress made in deleveraging," the report said.
OECD says corporate debt in China has fallen to about 160% of GDP, thanks to years of attacks on riskier financing types and debt, but it is still higher than other major economies.


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