China has achieved a “soft landing” in its economic slowdown, the IMF said, while cautioning that more sweeping reforms are needed to ensure healthy growth in the longer term.
In a report yesterday on its Web site, the IMF praised China’s leaders for adjusting policies to help counter the malaise plaguing the global economy that has also slowed robust growth in China and other emerging nations.
“China’s economy seems to be undergoing a soft landing, though global headwinds are increasing,” said the report, issued after IMF consultations with Beijing.
It said that China had reduced some imbalances in the world’s second-biggest economy, such as its once huge trade surplus, and brought inflation under control. However, it pointed to risks from excessive bank lending and urged more effective regulation to ensure financial stability.
“Overall we are very confident that China is experiencing what we would call a soft landing,” Markus Rodlauer, deputy director of the IMF’s Asia & Pacific Department, said in a video interview. “This means growth of about 8 percent. This is less than it was in the past, but still, it compares very favorably to what is happening around us.”
China’s second-quarter growth fell to a three-year low of 7.6 percent as exports, consumer spending and factory output weakened. Analysts say a rebound might begin in the second half, but could take longer to take root and be weaker than previously expected.
That has dampened hopes it might make up for weak Western demand and drive global growth. Just a week earlier, the IMF had cut its growth forecast for China’s economy by 0.2 percentage points to 8 percent this year and said a “hard landing” was still possible.
It forecasts growth next year of 8.5 percent.
Yesterday, a senior official from the Ministry of Industry and Information Technology told reporters in Beijing that data over the past three months showed industry production was stabilizing.
However, Zhu Hongren (朱宏任), the ministry’s chief engineer, cautioned that growth remained relatively weak.
“We need to do more to ensure stable and rapid development of the industrial economy,” Zhu said.
China has cut interest rates twice since the start of last month and is seeking to counter its slowdown through higher spending on public housing and other public works and investment by state-owned industry. It is moving cautiously, hoping to avoid the inflationary overheating unleashed by recession-fighting stimulus in 2008 and 2009.
Healthy longer term growth will hinge on Beijing’s success in stimulating domestic demand and reducing its reliance on investment, especially in construction, to drive growth, Rodlauer said.
“China has tremendous potential and will continue to grow rapidly, but to tap this potential it will have to change,” he said. “A host of reforms are necessary.”