China’s growth outlook remains strong and this is an opportunity to accelerate re-balancing, International Monetary Fund staff said after a regular consultation with the Chinese government.
However, external risks rose with escalating trade tensions and tightening global financial market conditions, the lender cautioned after the Article IV consultation.
In order to achieve the desired higher-quality growth, the Chinese government was advised to continue to rein in credit growth, foster openness, increase the role of market forces and to modernize policy frameworks.
Authorities should build on the existing reform agenda and take advantage of the current growth momentum to ‘fix the roof while the sun is shining’, the IMF staff said.
They noted that the longer-term outlook for China will depend on the policies deployed to achieve the authorities’ goals.
A reversion to credit-driven stimulus would further increase vulnerabilities that could eventually lead to an abrupt adjustment, the IMF said.
Earlier this week, China’s State Council decided to take more “proactive” fiscal steps to help the economy grow in a reasonable pace amid external uncertainties, but to avoid a strong stimulus.
IMF urged Chinese authorities to ‘stay the course’ and not to loosen credit if growth falls below target.
The economy had expanded 6.9 percent in 2017, driven by a cyclical rebound in global trade. However, growth is forecast to soften to 6.6 percent this year on weak foreign demand.
Although growth became less dependent on credit and the current account surplus continued to fall, the IMF noted that exports rather than consumption drove the growth pick up.
On monetary policy, the IMF said the People’s Bank of China should prepare to tighten gradually as inflationary pressures start to emerge. Moreover, a higher interest rate would help to reduce leverage and limit potential pressure on the exchange rate.
by RTTNews Staff Writer
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