China should set lower 2015 GDP growth target of 6.5-7 pct - IMF

BEIJING Thu Jul 31, 2014 9:37am IST

A worker cut steel bars at a steel plant in Ganyu, Jiangsu province June 9, 2014.  REUTERS/China Daily/Files

A worker cut steel bars at a steel plant in Ganyu, Jiangsu province June 9, 2014.

Credit: Reuters/China Daily/Files

Related Topics

BEIJING (Reuters) - China should set an economic growth target of 6.5-7 percent for 2015, below its goal for 2014, 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, 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, and 7.3 percent next year.

Weakness in China's real estate sector posed near-term risks for China's 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.

Near-term risks in China's 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.

Beijing is not expected to announce its 2015 target until early next year, though some government economists have suggested a level of around 7 percent to help create more room to pursue structural changes.

"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.

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. [ID:nL4N0PR083]

The economy grew 7.7 percent in 2013, above the target of 7.5 percent and again underpinned by government stimulus early in the year.

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.

This is because risks in China in the form of off-budget spending and quick growth in credit and investment have "risen to the point that containing them is a priority", it said.

Any stimulus that was dispensed should be carried out through fiscal policy and accounted for in government budgets, the IMF added.

"Consumption and the labour market are holding up well, and the global recovery is expected to support activity going forward." In line with the modest 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.

Price pressures are expected to pick up slightly next year to boost inflation to 2.5 percent.

The fund also repeated its assessment that the yuan CNY=CFXS 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.

Turning to China's endeavours to implement the most ambitious reforms in three decades, the fund again 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.

It said China also needed to boost consumption, reorder local government finances, and improve pension and health benefits.

(Reporting by Koh Gui Qing and Kevin Yao; Editing by Eric Meijer)

FILED UNDER:
  • Most Popular
  • Most Shared

Pending Reform

REUTERS SHOWCASE

Power Theft

Power Theft

India to invest $4 billion to tackle power theft  Full Article 

Debt Funds

Debt Funds

India monitors foreign flows into debt funds, may tighten rules  Full Article 

Bulgari Back in India

Bulgari Back in India

CEO: we shouldn’t have left India so we’re back  Full Article 

 Hindu "Modi-fication"

Hindu "Modi-fication"

Fears grow about Hindu "Modi-fication" of education  Full Article 

Weak Credit

Weak Credit

Hard to hit tax revenue target, credit weak - Jaitley  Full Article 

China Rate Cut

China Rate Cut

China surprises with interest rate cut to spur growth  Full Article 

Gold Imports

Gold Imports

RBI cautious on response to gold import surge  Full Article 

Economic Corridor

Economic Corridor

China commits $45.6 billion for economic corridor with Pakistan  Full Article 

Overseas Funds

Overseas Funds

RBI says overseas borrowed funds can be parked with banks in India  Full Article 

Reuters India Mobile

Reuters India Mobile

Get the latest news on the go. Visit Reuters India on your mobile device  Full Coverage