A new report from the International Monetary Fund (IMF) forecasts that China will maintain healthy economic growth over the next five years, while calling for greater restraint of credit growth and further financial opening and reform.
The IMF’s 2018 Article IV Mission to China sees economic growth edging lower in 2018 to 6.6%, before gradually easing to 5.5% by 2023.
China’s GDP growth accelerated in 2017 for the first time since the turn of the decade on the back of a rebound in global trade, posting an increase of 6.9%.
While the report hailed Beijing’s ongoing reform measures and efforts to shift from high-speed to high-quality growth, it also highlighted problems in relation to the pace of credit growth.
“While credit growth has slowed, it remains too fast,” said the report. “Slowing it further will require less public investment, tighter constraints on SOE borrowing, and curbing the rapid growth in household debt.
“Rebalancing the economy will likely mean somewhat slower overall growth. This should not be resisted, for example, with credit-fueled investment stimulus — this would make the debt problem worse and undermine growth later on.”
The IMF also called for China to boost consumption, increase government social expenditures on areas such as health, education and social transfers, and enable markets to play a more decisive role in resource allocation by reducing the dominance of SOE’s in many industries.
“The importance of the private sector was reinforced by the IMF team’s visit to the dynamic and prosperous city of Shenzhen, where it has been private, not public, firms that have driven China’s global leadership in frontier industries such as e-commerce, fintech and hi-tech consumer goods,” said the report.
Accelerated opening of the Chinese economy was another area highlighted by the report, alongside modernisation of the financial policy framework.
“China’s trade and investment regime remains relatively restrictive,” said the report. “Faster opening would not only support China’s own high-quality growth agenda, but also benefit the global economy.
“Monetary policy should continue to become more price, rather than quantity, based, and the exchange rate should continue to become more flexible.
“The central government should share more of local government’s spending responsibilities while increasing their ability to raise their own revenues.”