China Business Blog - Aggregated China Business Blogs
Aggregated China Business Blogs
IMF lowering its prediction for China's economy
Aggregated Source: Shanghai Daily: Business

THE International Monetary Fund expects China's economy to grow 7.75 percent this year, lowering its earlier forecast of 8 percent due to weaker global demand.

The projection is still above the 7.5 percent target set by the Chinese government and in line with China's gross domestic product expansion of 7.7 percent in the first quarter of the year.

"Despite weak and uncertain global conditions, the pace of Chinese economy should pick up moderately in the second half of the year, as the recent credit expansion gains traction and in line with a projected mild pick-up in the global economy," the IMF said in its report yesterday.

It said there needs to be a "decisive push" to launch new market-oriented reforms and China has to control rapid credit growth that could lead to financial problems.

China's new leadership has promised to make China's economy more productive but have yet to disclose details.

In meetings with visiting IMF officials, Chinese leaders emphasized their desire to nurture "more balanced, inclusive" growth, said David Lipton, a deputy IMF managing director.

"They need continued liberalization and reduced government involvement (in the economy), allowing a greater role for market forces," The Associated Press quoted Lipton as saying.

The government-dominated economy requires "a decisive push to promote rebalancing - rebalancing toward higher household incomes," he said.

"Allowing more competition in sectors currently considered strategic would improve economic growth," said Lipton.

He said change would require "strong determination."

The IMF also stressed the need for China to pay attention to explosive credit growth.

Private sector analysts estimate "total social financing" - the government's term for credit from both the state-owned banking industry and informal private sources - rose 58 percent in the first quarter over a year earlier.

Lipton told reporters in Beijing the rapid rise in lending increased the risk that investments might be of poor quality and borrowers might default.

"Growth has become more dependent - perhaps too dependent - on the continued expansion of investment," Lipton said. "Reining in total social financing and its growth is a priority."

The central government is expected to unveil a new round of reforms later this year. Policy changes may include a redefinition of tax sharing with provincial and local governments, clarification of land ownership transfers and decentralization of administrative controls.

The IMF said there were three broad challenges: embedding strong governance in entities such as banks, state-owned enterprises and local government; continued liberalization and reduced government involvement; and a decisive push for rebalancing toward higher household incomes and consumption.

Barclays economist Huang Yiping said the reforms should result in less government intervention in economic activity, more equal income distribution, a more balanced economic structure and accelerated industrial upgrading.

Original URL: Click here to visit original article
Copyright Shanghai Daily: Business