CHINA’S policy-makers should forge ahead with structural reforms to put its economy on a more sustainable footing, even as growth is likely to slow further to 6.3 percent in 2016, the International Monetary Fund said yesterday.
It expects China’s growth to slow to 6.8 percent this year from 7.3 percent in 2014, and weaken further in 2016.
“Modest further policy support to ensure that growth does not fall sharply is likely to be needed, but further progress in implementing the authorities’ structural reforms will be critical for private consumption to pick up some of the slack from slowing investment growth,” IMF said in its World Economic Outlook.
The government has been steadily ratcheting up its policy support, including cutting interest rates and increasing fiscal spending, in a bid to put a floor under an economy on track to grow at its weakest pace in a quarter of a century.
The government is aiming for growth of around 7 percent for this year.
China faces a tough balancing act in preventing a sharp slowdown, reducing vulnerabilities from excess leverage and strengthening the role of market forces in the economy, the IMF said.
The credit and investment boom, fanned by a massive stimulus package during the height of the global financial crisis, resulted in heavy debt among local governments and widespread factory overcapacity.
“There are risks of a stronger growth slowdown if the macroeconomic management of the end of the investment and credit boom of 2009-12 proves more challenging than expected,” the IMF said.
The IMF reaffirmed its calls for China to press ahead with market-based currency reforms, following the surprise devaluation of the yuan in August.
“The recent change in China’s exchange rate system provides the basis for a more market-determined exchange rate, but much depends on implementation,” the IMF said.
“A floating exchange rate will enhance monetary policy autonomy and help the economy adjust to external shocks, as China continues to become more integrated into both the global economy and global financial markets.”
China described the devaluation as modest and part of reforms to make the currency more market-driven, coinciding with a push to have the yuan included in the IMF’s Special Drawing Rights basket. The IMF board is to decide next month whether to include the yuan.