BEIJING, China – China needs to make a “decisive push” to launch new market-oriented reforms and has to control rapid credit growth that could lead to financial problems, the International Monetary Fund said Wednesday.
The fund trimmed its growth forecast for China this year from 8 per cent to 7.75 per cent due to weaker global demand but said the Chinese economy should remain robust.
President Xi Jinping and other leaders who took power in November have promised to make China’s economy more productive but have yet to disclose details. The World Bank and other advisers say Beijing urgently needs to curb the dominance of state companies and promote free-market competition or growth will decline sharply.
In meetings with visiting IMF officials, Chinese leaders emphasized their desire to nurture “more balanced, inclusive” growth, said David Lipton, a deputy IMF managing director.
“They need continued liberalization and reduced government involvement (in the economy), allowing a greater role for market forces,” Lipton told reporters.
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 Communist Party to changes that might hurt revenues for politically favoured state companies that dominate industries including banking, telecommunications, shipping and energy.
“Allowing more competition in sectors currently considered strategic would improve economic growth,” said Lipton. 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 per cent 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.”