Chinese economy gets vote of confidence as IMF forecasts ‘sustainable growth’
But in its annual review, fund says credit growth ‘remains too fast’ and the country should ‘stay on the healthy diet’
The International Monetary Fund has given a vote of confidence to China’s economy and efforts at “rebalancing”, forecasting that the country’s growth will stay on track for the foreseeable future.
“We welcome the authorities’ strategy to more decisively shift the policy focus from high-speed to high-quality growth,” the IMF said in a statement released in Beijing on Wednesday, using the language used by China to describe its policy.
“We are confident that China will rebalance to a sustainable growth mode,” it added.
That was the IMF’s main conclusion after a two-week field visit and “highly constructive and candid discussions” with high-ranking financial cadres, including Vice-Premier Liu He and central bank governor Yi Gang, for its annual review of China’s economic health.
The assessment will be welcomed by Beijing at a time when it is facing the threat of a trade war with the United States and as it grapples with a mountain of debt.
Elsewhere in the market, there are fears of a sharp slowdown in the world’s second biggest economy. London-based Capital Economics published a research note this month forecasting China’s growth would slow to 2 per cent by the end of the next decade, from 6.9 per cent last year.
While the IMF said debt was still a risk, it expected China’s growth to moderate only slightly, to 5.5 per cent by 2023, from an estimated 6.6 per cent in 2018.
The Washington-based fund also highlighted Beijing’s efforts to curb financial risk and make structural adjustments.
“Reforms progressed in several key areas: financial sector de-risking accelerated, with a wide range of decisive measures adopted; credit growth slowed; overcapacity reduction progressed; anti-pollution efforts intensified; and opening up continued,” David Lipton, the IMF’s first deputy managing director, was quoted as saying in the statement.
But relying too much on debt for growth is a problem, and the IMF said credit growth “remains too fast” and the authorities should slash public investment, tighten borrowing by state firms and put a lid on the rapid growth of household debt.
“Continuing with reforms will allow you to grow without being so reliant on credit,” said James Daniel, the IMF’s mission chief for China and assistant director of its Asia and Pacific Department.
“What we’ll say is, continue the process, stay on the healthy diet,” he told reporters in Beijing.
The fund also called on Beijing to reduce the dominance of the public sector in many industries, open up more markets to the private sector and ensure fair competition. “China’s trade and investment regime remains relatively restrictive,” the statement said.
Last month, Beijing announced it would further open up its previously tightly controlled financial industry to foreign investors, allowing them to take a controlling stake in financial joint ventures.
Daniel said the reform and opening-up was “clearly a win-win” and it was in China’s own interests to keep going with it.
“I’ve been discussing [this] with the government over the last couple of weeks – it’s clear that it’s their intention to continue,” he said.
Alfred Schipke, the IMF’s senior resident representative in China, said the fund supported opening up, but it should be done in a gradual way.
“Financial opening-up and liberalisation should go hand in hand with accompanied reforms. The financial sector needs further strengthening … and it’s also important for the exchange rate to become more flexible,” he said.