IMF urges China to focus on reforms

June 08, 2014 - 12:49:56 am
Britain’s Chancellor of the Exchequer George Osborne (right) with IMF Managing Director Christine Lagarde in London. Britain’s economic recovery is robust and becoming more balanced, but action must be taken to deal with a housing shortage that is causing prices to spiral, the IMF said. 

BEIJING: The International Monetary Fund (IMF) recommended that China adopt an economic growth target of about 7 percent for 2015 and urged authorities to avoid further stimulus measures and concentrate on curtailing financial risks instead.

In remarks that projected confidence about the near-term health of the world’s second-biggest economy, the IMF said Beijing must keep its word on implementing reforms that will correct imbalances, including a “moderately undervalued” yuan.

Specifically, the fund said conditions are right for China to take the next step in freeing its interest rates market, challenging the view among some senior Chinese officials that the country is not yet ready for such a move.

“We are not counseling stimulus at this point,” IMF’s First Deputy Managing Director David Lipton told reporters in Beijing, when asked if he thought China’s government should do more to shore up flagging economic growth. “We don’t think there are sufficient signs that would warrant that.”

Rather, he said the bigger threat to China is its persistent reliance on debt and investment in areas such as real estate to power its economy, weaknesses that are growing and which will hurt it in the long run if they are not corrected.

So unless China’s economy is at risk of missing the government’s growth target of about 7.5 percent this year by a substantial margin, Lipton said more stimulus is unwarranted. “Vulnerabilities have risen to the point that containing them should be a priority,” he said, noting that the IMF believes China can hit its economic growth target for 2014.

For next year, the fund recommended that Beijing adopt a growth target of around 7 percent — a level that Lipton said is realistic if China was to carry out extensive financial reforms as it has promised. The fund itself has projected growth of 7.3 percent in 2015. Beijing has announced a series of modest stimulus measures in recent months after the economy got off to a weak start this year. Business surveys in the last week signal activity may be starting to stabilize but a slight pick-up in parts of the economy does not mean a solid, broader recovery is under way.

The economy’s lackluster performance has stirred speculation that the government may act more forcefully to shore up activity, even though Beijing has ruled out any big policy moves to counter short-term dips in growth.

China has vowed to embrace comprehensive reforms that are likely to stifle activity in the near term, in order to re-orient its economy and let domestic consumption replace exports and investment as the mainstay sources of growth.

Experts say the painful transition is necessary if China wishes to break into the ranks of high-income economies.

Of the needed changes, the IMF highlighted tax and fiscal reforms, an insurance for deposits and a removal of state control over deposit rates.

Reuters

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