The International Monetary Fund (IMF) has raised concerns about China's spiraling corporate debt and the associated potential risks. China is currently struggling to reverse a declining growth rate while its total debt and corporate debt is increasing. Banks are also being forced to carry high non-performing loans as companies are struggling to turn profits.

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David Lipton, the IMF's First Deputy Managing Director, said: "Mounting corporate debt is a key fault line in the Chinese economy."

Lipton is slated to speak at a conference in the Shenzhen on Saturday, June 11. He stated that the country needs to take immediate measures to curb its corporate debts. Lipton also emphasized the importance of undertaking "serious reforms" in this regard.

China's total debt is at 225 percent of its gross domestic product (GDP). The ratio is high but is in line with international standards. However, its corporate debt content is worrisome at 145 percent of its GDP.

According to the IMF, countries with such huge debt buildup were required to move quickly to fix the issue.

Chinese authorities have taken various steps to curb the problem. The People's Bank of China stated in its mid-year work report that government measures to reduce overcapacity and debt levels may cause an increase in bond default risks, making it challenging for corporations to raise funds. According to IMF estimates, 55 percent of China's corporate debt is owed by state-run enterprises which are responsible for only 22 percent of the country's economic output.

Lipton further added that China needs to improve the quality of its corporate governance to best tackle the "repeating cycle of credit growth, indebtedness, and corporate restructuring."

TagsInternational Monetary Fund, china, The People's Bank of China, David Lipton