China Should Set Less Ambitious 2015 Growth Target, Refrain From Stimulus: IMF

International News
By Amwal Al Ghad English

China should set an economic growth target of 6.5-7 percent for 2015 and refrain from stimulus measures unless the economy threatens to slow sharply from that level, the International Monetary Fund said on Thursday.

Most of its directors hold that view, though some feel that an even-lower growth target is appropriate, the IMF said in the conclusion of its annual Article IV economic consultation with China.

“Regarding the growth target for 2015, while most directors concurred that a range of 6.5-7 percent would be consistent with the goal of transitioning to a safer and more sustainable growth path, a few other directors considered a lower target more appropriate,” the IMF said.

The IMF repeated its projection that the economic growth would dip to 7.4 percent this year, and decelerate further to 7.1 percent next year.

The IMF cut its 2014 and 2015 economic growth forecasts for China last week. It had projected in April that the world’s second-largest economy would grow 7.5 percent this year, in line with Beijing’s official target, and 7.3 percent next year.

Most Chinese government economists, however, doubt Beijing would slash its growth target to below 7 percent next year for fear of undermining financial stability and market confidence.

Zhu Baoliang, chief economist at State Information Centre, a top government think-tank in Beijing, said he expected the 2015 growth target to be around 7 percent.

“We should set a target of around 7 percent for next year and maintain the target for a number of years,” he told Reuters.

“But we cannot cut the target by one percentage point next year, that may have a big impact,” he said, warning that a sharp lowdown could hit fiscal revenues and the financial sector.

Beijing is not expected to announce its 2015 target until early next year, though some government economists have suggested a lower level to help create more room to pursue structural changes.

The Politburo, a top decision-making body of the ruling Communist Party, said earlier this week that China must maintain a “certain speed” in its development over the long term to help resolve problems in the economy.

REFORMS URGED

China fixed its annual economic growth target for this year at around 7.5 percent, suggesting for the first time in years that there is room for growth to come in slightly under the desired level.

But after a weak start to the year, the government announced a flurry of stimulus measures to offset the drag from weak exports and a cooling property market.

Some analysts have criticised the 2014 target as one that is still too high to give China enough room to overhaul its economy to produce slower but better-quality growth.

To that end, the IMF repeated an earlier recommendation that China should not deploy any economic stimulus unless GDP growth is in danger of falling “significantly” below the target level.

Weakness in China’s real estate sector posed near-term risks for the economy despite signs of steadying, Markus Rodlauer, deputy director of the IMF’s Asia Pacific Department and the fund’s mission chief for China, told reporters.

“A key uncertainty remains in the real estate sector, some further weakness could be building and because of the very large direct and indirect importance of this sector, this still poses a risk to the near-term outlook,” he said.

Such near-term risks in the economy remained manageable due to the government’s policy buffers, but Beijing must push reforms as the current path of growth is unsustainable, he added.

The fund urged authorities to free up bank deposit interest rates, remove implicit guarantees in the financial and corporate sectors, and open more industries up for competition.

YUAN REMAINS UNDERVALUED

In line with the modest economic cooldown, the IMF estimated that annual inflation in China may ease to 2 percent this year, a good way under the government’s 3.5 percent target.

The fund also repeated its assessment that the yuan is “moderately undervalued”, and said it supported China’s attempt to move towards a more flexible exchange rate that is not subjected to “sustained, large and asymmetric intervention”.

The IMF stuck with its assessment that the yuan is between 5 and 10 percent undervalued, based on China’s current account surplus relative to gross domestic product, Rodlauer said.

“But again this is not an assessment that the exchange rate should be revalued or appreciated in the next few months by 5 percent to 10 percent,” he said.

The central bank is widely suspected of engineering a sharp drop in the currency earlier this year to punish speculators, though most economists expect it will eventually allow the yuan to resume a trend of gradual appreciation.

At the same time, the IMF noted that previous appreciation in the yuan’s real effective exchange rate had helped to narrow China’s external imbalances – its current account surplus dropped to 1.9 percent of GDP last year.

Source : Reuters

China Should Set Less Ambitious 2015 Growth Target, Refrain From Stimulus: IMF

China should set an economic growth target of 6.5-7 percent for 2015 and refrain from stimulus measures unless the economy threatens to slow sharply from that level, the International Monetary Fund said on Thursday.

Most of its directors hold that view, though some feel that an even-lower growth target is appropriate, the IMF said in the conclusion of its annual Article IV economic consultation with China.

“Regarding the growth target for 2015, while most directors concurred that a range of 6.5-7 percent would be consistent with the goal of transitioning to a safer and more sustainable growth path, a few other directors considered a lower target more appropriate,” the IMF said.

 

 

The IMF repeated its projection that the economic growth would dip to 7.4 percent this year, and decelerate further to 7.1 percent next year.

The IMF cut its 2014 and 2015 economic growth forecasts for China last week. It had projected in April that the world’s second-largest economy would grow 7.5 percent this year, in line with Beijing’s official target, and 7.3 percent next year.

Most Chinese government economists, however, doubt Beijing would slash its growth target to below 7 percent next year for fear of undermining financial stability and market confidence.

Zhu Baoliang, chief economist at State Information Centre, a top government think-tank in Beijing, said he expected the 2015 growth target to be around 7 percent.

“We should set a target of around 7 percent for next year and maintain the target for a number of years,” he told Reuters.

“But we cannot cut the target by one percentage point next year, that may have a big impact,” he said, warning that a sharp lowdown could hit fiscal revenues and the financial sector.

Beijing is not expected to announce its 2015 target until early next year, though some government economists have suggested a lower level to help create more room to pursue structural changes.

The Politburo, a top decision-making body of the ruling Communist Party, said earlier this week that China must maintain a “certain speed” in its development over the long term to help resolve problems in the economy.

REFORMS URGED

China fixed its annual economic growth target for this year at around 7.5 percent, suggesting for the first time in years that there is room for growth to come in slightly under the desired level.

But after a weak start to the year, the government announced a flurry of stimulus measures to offset the drag from weak exports and a cooling property market.

Some analysts have criticised the 2014 target as one that is still too high to give China enough room to overhaul its economy to produce slower but better-quality growth.

To that end, the IMF repeated an earlier recommendation that China should not deploy any economic stimulus unless GDP growth is in danger of falling “significantly” below the target level.

Weakness in China’s real estate sector posed near-term risks for the economy despite signs of steadying, Markus Rodlauer, deputy director of the IMF’s Asia Pacific Department and the fund’s mission chief for China, told reporters.

“A key uncertainty remains in the real estate sector, some further weakness could be building and because of the very large direct and indirect importance of this sector, this still poses a risk to the near-term outlook,” he said.

Such near-term risks in the economy remained manageable due to the government’s policy buffers, but Beijing must push reforms as the current path of growth is unsustainable, he added.

The fund urged authorities to free up bank deposit interest rates, remove implicit guarantees in the financial and corporate sectors, and open more industries up for competition.

YUAN REMAINS UNDERVALUED

In line with the modest economic cooldown, the IMF estimated that annual inflation in China may ease to 2 percent this year, a good way under the government’s 3.5 percent target.

The fund also repeated its assessment that the yuan is “moderately undervalued”, and said it supported China’s attempt to move towards a more flexible exchange rate that is not subjected to “sustained, large and asymmetric intervention”.

The IMF stuck with its assessment that the yuan is between 5 and 10 percent undervalued, based on China’s current account surplus relative to gross domestic product, Rodlauer said.

“But again this is not an assessment that the exchange rate should be revalued or appreciated in the next few months by 5 percent to 10 percent,” he said.

The central bank is widely suspected of engineering a sharp drop in the currency earlier this year to punish speculators, though most economists expect it will eventually allow the yuan to resume a trend of gradual appreciation.

At the same time, the IMF noted that previous appreciation in the yuan’s real effective exchange rate had helped to narrow China’s external imbalances – its current account surplus dropped to 1.9 percent of GDP last year.

Source : Reuters

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