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IMF Warns Debt Risk Growing From Big Firms in China, Other Emerging Markets 

April 14, 2016

William Maudlin, The Wall Street Journal

Debt burdens of big companies in China and other emerging markets could spread trouble across borders and weigh on the global financial system, the International Monetary Fund warned Wednesday.

The ballooning debt of giant firms in fast-growing economies is of particular concern because of companies’ close ties to banks in those countries, as well as the national governments likely on the hook to bail them out.

In China, fully $1.3 trillion of corporate loans, or one-seventh of the total, are owed by companies whose profits don’t cover their interest payments, a problem that could trigger bank losses equal to 7% of gross domestic product if the issue isn’t addressed, the IMF said in a report on global financial stability.

“Despite progress on economic rebalancing, corporate health in China is declining due to slowing growth and lower profitability,” said José Viñals, the IMF’s top financial counselor.

Meanwhile, in Brazil and Russia, national champions have been hit by falling commodity prices and economic contractions. Read more

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