The International Monetary Fund said Wednesday that corporate China's balance sheets have deteriorated to the point that some $1.3 trillion in borrowings is at risk of default.

It said that the financial health of Chinese companies has declined as profitability has sunk amid slower economic growth, and there is clear evidence that more companies are not earning enough to cover the interest owed on borrowings.

Such "debt at risk" has risen to 14 percent of all debt at listed Chinese companies, triple the level of 2010, the IMF said in its Global Financial Stability Report.

That means that bank loans at risk amount to nearly $1.3 trillion, it said.

"These loans could translate into potential bank losses of approximately 7 percent of GDP."

The IMF said that, given the buffers Beijing has built up for its banks, and still-strong economic growth, the huge number is recognized by authorities and is "manageable."

Even so, it added, "the magnitude of these vulnerabilities calls for an ambitious policy agenda."

The IMF said Beijing needs to address the massive corporate debt overhang and further strengthen financial institutions.

World Bank and China-backed infrastructure bank join hands
Washington (AFP) April 13, 2016 –

The World Bank and the new China-backed Asian Infrastructure Investment Bank, originally seen as possible rivals, joined hands Wednesday with an agreement to co-finance projects.

The two development banks signed off on a framework for working together on infrastructure programs over the coming year which will give the World Bank some crucial oversight on how projects are planned and implemented.

In its first year of operation, the AIIB expects to approve about $1.2 billion in financing, with a "sizable share" of that to be in joint projects with the World Bank, the two said.

Under consideration are around a dozen projects including water, transportation, and energy developments in East, Southeast and Central Asia.

Beijing riled some World Bank backers two years ago when it moved to establish the AIIB to support the huge demand for infrastructure development in Asia.

Critics led by the United States worried that the AIIB would set much lower standards for projects that would undermine principles of social, environmental and economic sustainability adhered to by the World Bank and other multilateral development finance institutions.

The AIIB was formally created in December with 57 members, and China the largest shareholder with 30 percent.

But the United States and Japan declined to join, reserving their support for the World Bank and the Asian Development Bank, where Washington wields great influence.

The two development banks said Wednesday that under their agreement, the World Bank will prepare and supervise the joint projects "in accordance with its policies and procedures in areas like procurement, environment and social safeguards."

World Bank President Jim Yong Kim called the agreement "an important first step toward working with a new partner to address the world's huge infrastructure needs."

Speaking at an Asia Society conference in Washington, AIIB President Jin Liqun said Wednesday that there is "vast room for cooperation" between the two, citing a forecast of the need for up to $10 trillion worth of infrastructure projects across Asia for the next decade.

"We do not have to compete," he said, pledging high environmental and financial standards for the AIIB.

He added that the AIIB will have no tolerance for corruption and had already turned down a tainted project proposed to his bank after the World Bank and Asian Development Bank had turned it down.

"If corruption is involved, I'm sorry, we cannot do it."