Sat, Jul 28, 2018 - Page 10 News List

IMF warns China against aggressive stimulus steps

AFP, BEIJING

China must resist taking aggressive stimulus steps as it navigates troubled economic waters as they could add to excessive debt levels leading to an “abrupt adjustment,” the IMF said yesterday.

The IMF warning, contained in a policy report, comes after Chinese leaders earlier this week signaled a shift toward looser fiscal policy to help barricade the world’s second-largest economy against global economic turbulence.

However, the IMF said “a reversion to credit-driven stimulus would further increase vulnerabilities that could eventually lead to an abrupt adjustment.”

It urged policymakers to “stay the course” in its longer-term drive to wean China’s economy off a dependence on fast growth fueled by exports and investment, and toward higher-quality, sustainable growth with domestic demand as a key driver.

The IMF lauded Beijing’s stewardship of the economy, saying growth remained solid, all the more reason to pursue economic reform now and “fix the roof while the sun is shining.”

It expressed confidence that China could balance the competing imperatives and reiterated a full-year economic growth forecast of 6.6 percent for this year, down from last year’s 6.9 percent.

The latest government statistics showed that economic growth slowed slightly to 6.7 percent in the second quarter — still above the official growth target of about 6.5 percent for this year.

However, China plans to put more money into infrastructure projects and ease borrowing curbs on local governments to help soften the blow to the economy from the Sino-US trade war, policy sources said.

Chinese leaders have ruled out another round of strong fiscal stimulus, wary of inflaming debt risks.

A 4 trillion yuan (US$590 billion at the current exchange rate) spending package in 2008-2009 shielded the Chinese economy from the global crisis, but saddled local governments and state firms with piles of debt.

The amount of infrastructure spending this time will depend on how the trade war evolves, four sources who are familiar with government policy said.

“In the short term, the most effective way is to boost infrastructure investment,” one policy insider who advises the government said on condition of anonymity. “We will let fiscal policy play a bigger role in supporting the economy as monetary policy is less effective.”

China’s infrastructure investment growth tumbled to 7.3 percent in the first half from 21.1 percent a year earlier — dragging fixed-asset investment growth to a record low — due to stricter checks on investment projects to curb debt risks.

Fiscal policy will become “more proactive,” the Cabinet said after a meeting on Monday, pledging to deliver more tax cuts and quicken the issuance of local governments’ special bonds to support infrastructure investment.

Additional reporting by Reuters

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