The IMF yesterday raised its yearly growth forecast for China, but warned that Beijing’s industrial policy risks a “misallocation” of resources and could harm trade.
The fund raised its growth forecast for the year to 5 percent — in line with a target set by Chinese authorities in March, up from the 4.6 percent expansion it had initially projected.
The IMF also welcomed steps in the past few weeks to boost the property market.
Photo; AFP
“The ongoing housing market correction, which is necessary for steering the sector towards a more sustainable path, should continue,” it said.
However, “a more comprehensive policy package would facilitate an efficient and less costly transition while safeguarding against downside risks,” it added.
The IMF also warned that Beijing’s strong support for strategic industries risked a “misallocation” of resources and trade blowback.
“Scaling back such policies and removing trade and investment restrictions would raise domestic productivity and ease fragmentation pressures,” the latest report said.
Beijing has faced growing pressure in recent months to curb industrial “overcapacity,” with the US warning excessive state subsidies could flood global markets with cheap goods.
A meeting of finance ministers and central bankers from the G7 countries this month saw them vow to present a “united front” against China’s alleged unfair trade practices and industrial overcapacity.
In the medium term, China’s “growth is expected to slow to 3.3 percent due to aging demographics and slower productivity growth, IMF first deputy managing director Gita Gopinath told a news conference in Beijing.
She also pointed to “significant fiscal challenges, especially for local governments,” adding that “sustained fiscal consolidation over the medium term is needed.”
This month, Beijing cut the minimum down payment rate for first-time homebuyers and suggested the government could buy up commercial real estate — some of its most ambitious moves yet to lift the property market out of an unprecedented debt crisis.
A number of cities, including economic powerhouse Shanghai, have also removed some curbs on buying property.
The IMF said that China needed “structural reforms to counter headwinds and address underlying imbalances.”
“Key priorities include rebalancing the economy towards consumption by strengthening the social safety net and liberalizing the services sector to enable it to boost growth potential and create jobs,” it said.
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