China economy

IMF ups growth outlook for China as Beijing declares war on ‘zombies’

Strong public investment will support China’s expansion in 2017 and 2018, the Fund says, while China’s Politburo zeroed in “zombie companies”

PUBLISHED : Monday, 24 July, 2017, 12:23pm
UPDATED : Tuesday, 25 July, 2017, 2:23am

The International Monetary Fund has revised up its forecasts for China’s economic growth in 2017 and 2018, the third time it has raised its outlook for the country this year.

The announcement came as China’s leaders pledged to make shutting down “zombie companies” and stabilising the property market top priorities.

The IMF said on Monday it expected China’s economy to grow by 6.7 per cent this year, up from the previously anticipated 6.6 per cent. It also said growth in 2018 was on track for 6.4 per cent, compared to its previous estimate of 6.2 per cent.

But the IMF also warned of potential risks from debt piles and urged Beijing to continue efforts to curb financial risks to avoid a sharp slowdown.

A failure to curb these dangers and rein in excessive credit growth “could result in an abrupt growth slowdown”, the IMF said.

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China’s gross domestic product rose 6.9 per cent in the first half of this year, ahead of the central government’s full-year target of about 6.5 per cent.

The IMF said in its updated world economy outlook that the revisions mainly reflected expectations that the authorities would “delay” the needed fiscal changes, opting instead to keep public investment high to ensure the country meets its target of doubling 2010 real GDP by 2020.

On the same day as the IMF’s announcement, the Politburo, the Communist Party’s 25-member ruling body, said it would tackle accumulated local government debt “in a proactive and safe manner” and firmly avoid a pile-up of “hidden debts” incurred by local authorities.

The authorities would also move to “stabilise the confidence of foreign investors and private sector investors”, state-run Xinhua quoted the Politburo as ­saying.

The Politburo also listed stabilisation of the property market as one of its key tasks.

Renmin University finance professor Zhao Xijun said there were signs that the debt loads of China’s households, its corporate sector and local governments were on the rise.

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“Some local governments are increasing debt loads and will face repayment pressure in the coming years. They cannot expand their debt burden excessively. This is key to warding off risks,” Zhao said.

Debt was also a focus of the five-yearly National Financial Work Conference earlier this month. Participants concluded that the country must cut the “leverage” ratio and control financial risks.

Mizuho Securities chief Asia economist Shen Jianguang said the central government needed to carefully balance deleveraging and growth, but Beijing might only take bold action to lower the leverage ratio after a top power reshuffle this autumn.

Releasing its forecasts in Kuala Lumpur on Monday, the IMF said it was keeping its outlook for global economic growth at 3.5 per cent for this year and 3.6 per cent for next year.

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It also revised up the growth forecast for the euro zone and Japan, but lowered projections on US growth, saying fiscal policy in the United States will be less ­expansionary than previously ­anticipated. The IMF shaved its forecasts for US growth to 2.1 per cent for 2017 and 2018, slightly down from its projections three months ago of 2.3 per cent and 2.5 per cent, respectively.

It upgraded 2017 GDP projections for the euro zone to 1.9 per cent, 0.2 points higher than in April. For next year, the IMF said euro zone growth would be slightly stronger at 1.7 per cent, up 0.1 points from three months ago.