The OECD’s fresh Economic Survey of China warned Tuesday that financial risks were mounting considerably in the Asian nation on the back of rising enterprise debt and overcapacity in some sectors.
The report said debt owed by non-financial firms in China had reached 170 percent of gross domestic product (GDP), the highest level among leading economies.
The development had been driven by implicit state guarantees to state-owned companies and public entities.
OECD researchers urged Chinese authorities to gradually reduce such guarantees and restrict leveraged investment in asset markets.
The report added that despite the debt issue China would remain the major driver of global growth in the foreseeable future, with per capita GDP on course to almost double by 2020 from 2010 levels.
The survey recommended that support for research and development be broadened to a wider range of sectors to boost innovation across the economy and maintain sustainable growth.
“Although China ranks first worldwide in terms of patents, streamlining the incentive system and removing regulatory barriers would boost the impact of innovation on productivity,” the OECD noted.
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