Risk con­trol cru­cial to growth

More stim­u­lus mea­sures will be needed only if econ­omy slows sharply, says IMF

China Daily (Canada) - - BUSINESS - By ZHENG YANGPENG zhengyang­peng@ chi­nadaily.com.cn

Con­tain­ing fi­nan­cial risks an­davoid­ing fur­ther stim­u­lus mea­sures should be the main pri­or­i­ties for pol­i­cy­mak­ers in China, as they con­tem­plate fresh strate­gies for sus­tained eco­nomic growth, the In­ter­na­tional Mon­e­tary Fund said on Thurs­day. “We con­sider that vul­ner­a­bil­i­ties have risen to the point where con­tain­ing them should be a pri­or­ity. There­fore, additional stim­u­lus should only be de­ployed if growth slows sig­nif­i­cantly be­low this year’s tar­get,” David Lip­ton, first deputy man­ag­ing di­rec­tor of IMF, told a news con­fer­ence in Bei­jing.

The IMF re­tained its an­nual GDP growth fore­cast for China at 7.5 per­cent but low­ered growth projections for next year from 7.3 per­cent to around 7 per­cent — a level that Lip­ton said is real­is­tic if China car­ries out ex­ten­sive fi­nan­cial re­forms.

“We are not coun­sel­ing stim­u­lus at this point,” Lip­ton said when asked if he thought the govern­ment should do moreto shore­upflag­ging eco­nomic growth.

“We don’t think there are suf­fi­cient signs that would war­rant that,” he said. “But we are coun­sel­ing vig­i­lance be­cause there are var­i­ous sec­tors where the fu­ture is some­what un­cer­tain.”

China has be­come too de­pen­dent on credit and in­vest­ment, in­clud­ing in real es­tate, since the global fi­nan­cial cri­sis (in 2008), the IMF said in a state­ment af­ter two weeks of talks with Chi­nese of­fi­cials for its an­nual as­sess­ment of the na­tion’s econ­omy.

“Con­tin­u­ing re­liance on credit-fu­eled growth means that risks are still ris­ing, and al­though the govern­ment still has suf­fi­cient buf­fers to pre­vent a dis­or­derly ad­just­ment and sharp growth slow­down in the near term, more sus­tained ef­forts to re­duce vul­ner­a­bil­i­ties are nec­es­sary,” the state­ment said.

China’s to­tal non-fi­nan­cial debt rose to 210 per­cent of GDP in 2013 from 197 per­cent in 2012, Zhu Haibin, chief China econ­o­mist at JPMor­gan Chase & Co, said in a re­port this week. Cor­po­rate debt rose to 130 per­cent of GDP in 2013 from 92 per­cent in 2008.

Fis­cal re­forms, strength­en­ing of lo­cal govern­ment fi­nances, lib­er­al­iza­tion of de­posit in­ter­est rates and the in­tro­duc­tion of de­posit in­sur­ance to re­move dis­tor­tions in the pric­ing of risk and bor­row­ing costs are other mea­sures that need im­me­di­ate at­ten­tion, the IMF said.

China also needs to im­ple­ment changes to bring its cur­rent ac­count sur­plus “in line with fun­da­men­tals” which would sup­port the coun­try’s eco­nomic tran­si­tion away from in­vest­ment and sav­ings, ac­cord­ing to the IMF. These in­clude greater ex­change-rate flex­i­bil­ity by fur­ther widen­ing the yuan’s trad­ing band and re­duc­ing cur­rency in­ter­ven­tion “so that the ex­change rate can find the mar­ket-clear­ing level as soon as pos­si­ble”.

The IMF also urged the govern­ment to es­tab­lish “a level play­ing field” for pri­vate and State-owned en­ter­prises by open­ing up for com­pe­ti­tion the sec­tors that were hitherto re­served only for the SOEs. Such steps are nec­es­sary to make the mar­ket a more “de­ci­sive” force, it said.

The govern­ment had in March in­di­cated that it was an­tic­i­pat­ing a GDP growth rate of 7.5 per­cent this year. How­ever, the 7.4 per­cent year-on-year growth recorded in the first quar­ter has trig­gered con­cerns that China might miss the an­nual tar­get for the first time in decades.

Al­though some ex­perts have called for more de­ci­sive stim­u­lus poli­cies to en­sure that the growth tar­gets are met, Bei­jing has re­frained from do­ing so. Lip­ton praised the govern­ment’s ap­proach and urged it to “carry through the re­form goals listed in the Third Plenum” (of the 18th Cen­tral Com­mit­tee of the Com­mu­nist Party of China).

Ac­cord­ing to Lip­ton, the Chi­nese reg­u­la­tors have taken sev­eral praise­wor­thy steps, like slow­ing credit ex­pan­sion, cool­ing down the property sec­tor and rein­ing in shadow bank­ing.

“We think these are risk re­duc­tion ac­tions that have been well taken. It would not make sense to re­verse these poli­cies for the sake of growth, as the risks may re­turn again,” he said.

“We be­lieve that China should fo­cus on hav­ing the fastest sus­tain­able growth, rather than the fastest pos­si­ble growth.”

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