BEIJING (AP) -- The International Monetary Fund urged China on Monday to speed up reforms meant to slow surging growth of debt that is fueling concern about the stability of its financial system.
The announcement adds to mounting warnings China's rapid run-up in debt due to reliance on lending to counter the 2008 financial crisis could drag on the economy or threaten the state-owned banking system. The Moody's ratings agency cut China's credit rating on May 25, citing the risks from rising debt loads.
Chinese leaders have begun to take action but need to move faster, said David Lipton, the IMF's chief deputy managing director. He spoke after meetings with finance, economic planning and central bank officials.
"Reform progress needs to accelerate to secure medium-term stability and address the risk that the current trajectory of the economy could eventually lead to sharp adjustment," said Lipton at a news conference.
Communist leaders have promised repeatedly to reduce reliance on debt and make China's state-dominated economy more market-oriented, but private sector analysts say they are moving too slowly.
The IMF expects China's economy to grow by 6.7 percent this year and to average 6.4 percent annually in 2018-2020, Lipton said.
Lipton urged Beijing to move faster in carrying out promised reforms aimed at making the state-dominated economy more productive by giving market forces a bigger role and nurturing growth based on consumption instead of trade and investment. He said that should start while growth is relatively strong and can help to ease the transition.
Estimates of China's total nongovernment debt have risen from the equivalent of 170 percent of annual economic output in 2007 to 260 percent as of last year, unusually high for a developing country.
Regulators say reducing financial risk is a priority this year. They have launched initiatives to reduce debts owed by state companies, including by allowing banks to accept stock to repay loans, but reform advocates say they need to move faster.
The rapid expansion and increased complexity of Chinese financial industries "has become a risk," said Lipton. He noted regulators have begun taking action to slow that growth and improve oversight.
Lipton acknowledged reining in credit growth might affect the economy, but said, "if there is some sacrifice in growth, it will be well worthwhile in avoiding risks of interruption of growth in the future."