IMF predicts China’s growth raises, advises faster reforms
IMF raised its forecast for world’s second largest economy that China must have to increase the pace of its growth reforms and to do more to restrain mounting debts.
The International Monetary Fund expects China to expand by 6.7 percent this year, faster than its previous estimate of 6.6 percent due to expanding credit and investment.
That would match last year’s growth rate, which was the slowest in a quarter of a century. The economy is then expected to slow to an average of 6.4 percent expansion between 2018 and 2020.
After years of blistering growth, China’s economy has been slowing as it moves from an investment and export-driven model to one more reliant on consumer spending. However Beijing’s Belt and Road infrastructure project, for which the government has earmarked hundreds of billions of dollars, has raised concerns it may be retreating from the difficult transition.
David Lipton, the IMF’s first deputy managing director, said it was critical that China capitalises on its still-strong pace of expansion to speed up reforms.
Lipton told reporters at the end of a two-week visit to China that while some near-term risks have receded, reform progress needs to accelerate to secure medium-term stability and address the risk that the current trajectory of the economy could eventually lead to a sharp adjustment.
The IMF also called on Beijing to do more to rein in soaring credit, warning that runaway lending could lead to a bad debt problem if borrowers default on their loans. China’s overall debt liabilities, which include corporate and household borrowing, are above 260 percent of gross domestic product compared to about 140 percent before the 2008 financial crisis.
Lipton said that when the debt-to-GDP ratio “rises quickly, when that rise gets beyond certain bounds, there tends to be vulnerabilities and a greater probability of crisis.
The IMF also urged Beijing to phase out support for underperforming state-owned enterprises (SOEs) and so-called zombie companies — those firms that survive only on rolling credit from the banks.
Lumbering SOEs and debt-choked companies have been a drag on the economy. While the government recognises the need for restructuring, it also fears mass lay-offs and social instability.