China’s Growth Unsustainable Without Reforms: IMF
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In its annual report on the Chinese economy, the International Monetary Fund on Wednesday warned that “time is running out” for China to shift away from its credit and investment fuelled growth model, pointing out that the government, banks and businesses are increasingly strained from years of rapid but unbalanced growth.
In its annual report on the Chinese economy, the International Monetary Fund on Wednesday warned that “time is running out” for China to shift away from its credit and investment fuelled growth model, pointing out that the government, banks and businesses are increasingly strained from years of rapid but unbalanced growth.
China’s progress has been underpinned by a mix of investment, credit and fiscal stimulus, but such a pattern of growth is unsustainable and 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 Fund said in its latest report on China.
“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, adding that “time is running out” for China’s existing growth model.
“While China still has significant buffers to weather shocks, the margins of safety are diminishing.”
Sounding a more cautionary note than before, the IMF also said Chinese government debt has been growing faster than reported, with “actual government debt” reaching 45 percent of GDP last year compared with the official figure of 22 percent.
While the debt burden is still within manageable limits, the Fund said the government has less fiscal flexibility than before.
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In 2008, when the global financial crisis erupted, China launched a massive stimulus that helped to buoy local growth but also sparked a surge in debt. With the world and Chinese economy slowing, some local officials have called for another stimulus effort. In its report, the IMF urged Beijing to resist these demands.
In response to the report, Chinese officials said the necessary changes were already underway to deal with some of the issues raised by the IMF, such as the need to liberalise its capital account.
The IMF’s assessment of China is among its sharpest yet for the world’s second largest economy, but the Washington-based organisation emphasised that China is entering a precarious period, forced to undertake major structural changes at a time when demand for its exports is slowing drastically.
Despite the increase in downside risks, the IMF kept its 2013 growth forecast for China steady at 7.75 percent.
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