IMF says China needs reforms to keep growth success

Wed Jul 17, 2013 10:58am EDT
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BEIJING/WASHINGTON (Reuters) - China needs another round of "decisive measures" to make sure it continues its successful economic growth as its margins of safety are falling amid growing domestic problems, the International Monetary Fund said in its latest report.

The world's second-largest economy has been underpinned by a mix of investment, credit and fiscal stimulus, but such a pattern of growth is unsustainable, the fund said on Wednesday in a report on its annual review of China's economy.

"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 forecast for 2013 Chinese growth at 7.75 percent, though it noted downside risks to the forecast. Its figure is above the Chinese government's target of 7.5 percent and also above most private economists' forecasts of between 7 and 7.5 percent.

China's new leaders have repeatedly 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 encourage more consumption.

That resolve has been tested, however, as growth slowed to 7.5 percent in the April to June quarter, the ninth quarter in the last 10 that expansion has weakened, and exports fell in June for the first time in 17 months.

Analysts have suggested that the government may step in if growth falls to 7 percent or below in any quarter, though it is unclear where the government's bottom line would lie.

The IMF said it was less worried about specific growth figures, as there were few signs of a sharp slowdown or "hard landing."   Continued...

The International Monetary Fund (IMF) logo is seen at the IMF headquarters building during the 2013 Spring Meeting of the International Monetary Fund and World Bank in Washington, April 18, 2013. REUTERS/Yuri Gripas