The IMF yesterday cut its growth forecast for China, citing a sluggish global recovery which hurt exports.
“The Chinese economy is expected to grow at around 7.75 percent this year and at about the same pace next year,” IMF first deputy managing director David Lipton told reporters in Beijing.
The IMF’s World Economic Outlook report released last month had forecast Chinese growth of 8 percent this year and 8.2 percent for next year — both of those predictions themselves reductions from previous ones made in January.
China’s economy grew 7.8 percent last year — its slowest pace in 13 years — and registered a surprisingly weak 7.7 percent expansion in the first three months of this year, well below forecasts.
Lipton said weakness in the global economy was a factor in slowing Chinese export growth.
The lowered GDP forecast “comes essentially from looking at the global economy and the pace of growth in the global economy and the demand that derives from that growth for Chinese exports,” he said. “Chinese export growth has been, after years and years of very rapid growth, very slow because of the state of the global economy and we now are taking our projections of the global economy into effect.”
Lipton also said China needs to make a “decisive push” to launch new market-oriented reforms and said Chinese leaders had emphasized their desire to nurture “more balanced, inclusive” growth.
He was speaking at the conclusion of regular IMF consultations with the Chinese government, which included meetings with Chinese Vice Premier Wang Qishan (王岐山) and People’s Bank of China Governor Zhou Xiaochuan (周小川).
“They need continued liberalization and reduced government involvement [in the economy], allowing a greater role for market forces,” Lipton said.
The government-dominated economy requires “a decisive push to promote rebalancing — rebalancing toward higher household incomes,” he said.
A key hurdle for reformers will be potential resistance within the ruling Chinese Communist Party to changes that might hurt revenues for politically favored state companies that dominate industries including banking, telecommunications, shipping and energy.
“Allowing more competition in sectors currently considered strategic would improve economic growth,” Lipton said. He said change will require “strong determination.”
The IMF also stressed the need for Beijing to pay attention to explosive credit growth that has helped to drive its economic rebound.
Private-sector analysts estimate “total social financing” — the government’s term for credit from both the state-owned banking industry and informal private sources — rose 58 percent in the first quarter over a year earlier.
Lipton said the rapid rise in lending increased the risk that some investments might be of poor quality and borrowers might default.
“Growth has become more dependent — perhaps too dependent — on the continued expansion of investment,” Lipton said. “Reining in total social financing and its growth is a priority.”