IMF calls for 'decisive' steps on China growth
Reuters in Beijing
China needs another round of "decisive measures" to put economic growth on a firmer footing as its margins of safety are falling amid growing domestic problems, the International Monetary Fund said in its latest report yesterday.
The economy had been underpinned by a mix of investment, credit and fiscal stimulus, but such a pattern of growth was unsustainable, the fund said in a report on its annual meeting with Chinese officials.
"To secure more balanced and sustainable growth, a package of reforms is needed to contain the growing risks while transitioning the economy to a more consumer-based, inclusive, and environmentally friendly growth path," the report said. "While China still has significant buffers to weather shocks, the margins of safety are diminishing."
The IMF did not change its latest 7.75 per cent forecast for economic growth on the mainland this year, though it noted risks to the forecast.
The agency's figure is above the Chinese government's target of 7.5 per cent and also above most private economists' estimates of between 7 and 7.5 per cent.
The mainland's new leaders have indicated that they are prepared to tolerate slower growth to push through reforms and deregulation to wean the economy off a reliance on exports and investment and boost consumption.
That resolve has been tested as growth slowed in the April to June quarter to 7.5 per cent and exports fell last month for the first time in 17 months.
The IMF said that for the near term, a priority is to rein in broader credit growth and prevent a further build-up of risks in the financial sector, noting the rise of the shadow banking system.
The IMF said China's agenda should include accelerated financial reforms, a revamp of local government finances, a more market-based currency exchange rate, opening more markets to competition and liberalising the capital account.