Beijing ‘must push deep reforms’
ON YOUR BIKE: Delivery workers take a break on a street in Beijing. China must quicken the pace of economic reforms and do more to curb rising debt, the IMF said this week CHINA must speed up economic reforms while it still has a buffer of stable growth, the IMF warned in its annual review of the world’s second-largest economy.
“Reform progress needs to accelerate to secure medium-term stability” and to lower the risk of a “sharp adjustment”, the IMF said in its Article IV report on Wednesday.
It acknowledged “some nearterm risks had receded” due to continuing tightening in the financial and housing markets.
The IMF forecast China’s GDP to grow 6.7% this year, edging up from a previous estimate of 6.6%, before falling to 6.4% between 2018 and 2020, in line with government forecasts.
However, the IMF warned that steady growth required “deep reforms to transition from the current growth model that relies on credit-fed investment and debt”, according to David Lipton, IMF first deputy MD.
China’s growth has been largely driven by investment, but this has started to slow because of declines in infrastructure and property investment.
Official figures released on Wednesday show annual growth in infrastructure fixed-asset investment dropped 4.3 percentage points last month, while property investment growth dropped 2.3 points, meaning growth in overall fixed-asset investment slowed to 7.8% year on year.
Beijing has made containing financial risk a priority this year, fearing bubbles in its financial and housing markets. Regulators have clamped down on speculative activity and have reined in institutions from insurance firms to property developers.
“No one knows for sure how long China has to reform. But China needs to do so otherwise the rate of return [on capital] is going to keep dropping,” said Larry Hu of Macquarie Capital.
Local governments have launched measures to restrain housing demand in big cities, prompting prices to stall or drop and sales to plummet. Property developers have had their funding channels squeezed.
“The recent measures in the financial and property markets don’t count as reforms, but as tightening. They will for sure lower short-term risks, but the long-term risks are still there.”
In its crackdown against corruption and risky investment, the government has been unafraid to target high-profile financiers such as the chairman of the insurance company Anbang, recently taken into detention.
Some of the country’s largest insurance companies have had their issuance of risky products suspended. The new banking regulator has launched a “regulatory windstorm” against the vast shadow-banking industry.
The credibility of China’s data also needed to be improved, the IMF said. Economists worldwide have long criticised China’s official economic statistics for being manipulated.
In particular, growth and employment figures are suspiciously stable, showing barely any sign of the volatility in the economy. — © The Financial Times