IMF: China econ­omy good in the long run

China Daily (USA) - - ACROSS AMERICA - By CHEN WEIHUA in Wash­ing­ton chen­wei­hua@chi­nadai­

China’s eco­nomic tran­si­tion has re­sulted in a slow­down felt all over the world, but such a shift is nec­es­sary and will ben­e­fit the global econ­omy in the long run, ac­cord­ing to econ­o­mists at the In­ter­na­tional Mon­e­tary Fund (IMF).

The IMF re­leased a re­port on Tues­day on spillovers from China’s eco­nomic tran­si­tion. The spillover reports started in 2011, fo­cus­ing on the ex­ter­nal ef­fects of do­mes­tic poli­cies in five sys­temic economies: China, the eu­ro­zone, Ja­pan, Bri­tain and the United States.

Ac­cord­ing to the re­port, just as rapid growth in China fos­tered global growth in the past, the on­go­ing slow­down and re­bal­anc­ing to­ward do­mes­tic con­sump­tion now also have an im­pact pri­mar­ily on trade, com­mod­ity prices and fi­nan­cial chan­nels.

Coun­tries that ex­port ma­chin­ery and raw ma­te­ri­als to China see an ap­petite for their prod­ucts. Com­modi­ties fall, and this hits Asian sup­pli­ers par­tic­u­larly hard. Mean­while, low de­mand for com­modi­ties such as met­als and oil can re­duce prices, the re­port says.

“China’s tran­si­tion is nec­es­sary to en­sure that growth re­mains sus­tain­able. In this re­gard, it will ben­e­fit the global econ­omy down the road,” Este­ban Ves­per­oni, a se­nior econ­o­mist at IMF and lead au­thor of the chap­ter on China’s spillovers, told a press brief­ing on Tues­day.

He ad­mit­ted that the tran­si­tion has neg­a­tive spillovers in the short term. “Well-man­aged tran­si­tion in China will ben­e­fit the global econ­omy, but bumpy tran­si­tion will have large spillovers. China can help by ac­cept­ing the slow­down and by clearly com­mu­ni­cat­ing its pol­icy in­ten­tions,” he said.

The re­port says that cer­tain lowwage, la­bor-rich coun­tries can ben­e­fit from China’s move up on the pro­duc­tion value chain by tak­ing up the China ba­ton. “At the global level, pro­tec­tion­ism should be avoided, as it will be detri­men­tal to trade over the long term,” the re­port says.

Writ­ing on the IMF web­site early this month, Long­mei Zhang, an econ­o­mist at IMF’s Asia and Pa­cific Depart­ment, de­scribed China’s eco­nomic struc­tural trans­for­ma­tion as putting the econ­omy on a more bal­anced and sus­tain­able foot­ing.

Zhang said the over­all progress has been a mixed pic­ture. China has made strong progress in switch­ing from ex­ter­nal de­mand to do­mes­tic de­mand in gen­er­at­ing growth.

Con­sump­tion has be­come more im­por­tant, con­tribut­ing more than two thirds of GDP growth in 2015. And China also has made a speedy tran­si­tion from in­dus­try to ser­vices.

But progress is still lack­ing in re­duc­ing the re­liance on credit and in tack­ling air pol­lu­tion and in­come in­equal­ity, ac­cord­ing to Zhang.

The World Trade Or­ga­ni­za­tion cut its fore­cast for global trade growth this year by more than a third on Tues­day.

The new fig­ure of 1.7 per­cent marked the first time in 15 years that in­ter­na­tional com­merce was ex­pected to lag the world econ­omy,.

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