IMF says China could destabilise global economy
Report warns of spillover effects unless Beijing liberalises the yuan and restructures weak firms, among other steps
China needs to revamp its financial regime to reduce possible “spillovers” onto the rest of the world, the International Monetary Fund said in a report on Tuesday.
In a subtle reminder of Beijing’s past policy missteps – from last summer’s stock market rout to opaque yuan exchange-rate tweaks that had roiled global markets – the IMF said in a report that a more free-floating exchange rate, a transparent mechanism for signalling policy changes and a system to counter vulnerability were all desirable for China.
“Clear communication of policy intention, including further steps to move towards a floating exchange rate regime, are of the essence,” the report said.
The country’s transition to more reliance on domestic consumption and innovation would reduce its appetite for importing intermediate goods – semi-finished products like the steel used in making cars – and its plan to retire overcapacity in coal and steel would have “a sizable effect” on commodities prices, the report said.
A “bumpy or incomplete“ transition in China would risk exacerbating the negative ripple effects, especially to emerging-market countries, the IMF report added.
Alfred Schipke, the bank’s representative for China, urged the country to further liberalise the yuan exchange rate, aiming for an effective float by 2018. He said Beijing could still intervene to counter excessive short-term volatility.