IMF Survey: IMF Sees China Growth Around 8% In 2012

IMF News, June 8, 2012

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China’s growth rate is expected to moderate in 2012 to around 8 percent from 9.2 percent last year.
China’s growth in 2010 was above 10 percent.
The IMF forecasts regional growth (Asia) will be 6 percent this year, roughly the same rate as in 2011, and about 6½ percent in 2013.
Industrialized Asia is projected to grow only at 2.2 percent.
Emerging Asia will remain the fastest growing region in the world, led by China and India.

Global demand slowing and heightened risks, particularly from Europe, are weighing on the world economy.
IMF First Deputy Managing Director David Lipton said inflation was under control and Beijing had room to support activity in case of a more serious global downturn.
Lipton welcomed a decision by the People’s Bank of China to cut interest rates by 0.25 percent, noting it “confirmed the authorities’ commitment to achieving their macroeconomic objectives in the face of slowing growth and increased downside risks, especially from Europe.”
“China again has space for a forceful response if necessary,” Lipton added, while noting that any stimulus should be provided through budgetary measures and geared toward supporting the objective of medium-term rebalancing.

The medium-term priority was to shift China’s economy toward a more consumer-based growth model that also aims to address rising inequalities by promoting more inclusive growth.
Lipton: “This transformation would substantially boost living standards in China and contribute significantly to strong and balanced global growth.”
The IMF supported China’s ongoing effort to promote higher-quality growth while fine-tuning macroeconomic policies to help ensure that growth does not slow too much.
China’s timely and large economic stimulus in 2009–10 had succeeded in supporting domestic growth, shielding China’s population from the worst of the crisis, and helping the global recovery by providing a needed lift to world demand.
Lipton argued for a package of reforms “to achieve quality growth that relies less on investment, more on consumption, and is environmentally friendly.”

The reform package would include measures to:
- raise household income,
- liberalize the financial system,
- strengthen social security while also lowering social contribution rates,
- further appreciate the exchange rate,
- increase the cost of various inputs to production.
Lipton noted these priorities also featured in China’s 12th Five-Year Plan, “but timely implementation will be key.”
The reform process needed to go faster to avoid a further build-up of risks and ensure a smooth transition to consumption-led growth. “Otherwise, domestic imbalances may unwind in a disorderly fashion and trigger an abrupt decline in investment.”

IMF analysis indicates an abrupt decline in investment in China “would have a significant negative impact on China, commodity prices, and the global economy.”
The spillover report highlights how closely interconnected the world has become, as well as the risks and tensions in each of the five major systemic economies—China, the eurozone, Japan, the United Kingdom, and the United States—and the need for a collective approach to resolving them.

Over the past several years, China had made significant progress in reducing external imbalances with other parts of the world.
The current account surplus has declined sharply from 10 percent of GDP in 2007 to less than 3 percent of GDP last year.
“This suggests that the undervaluation of the currency has been reduced,” Lipton said.
The Chinese renminbi was now no longer "substantially undervalued" but rather “moderately undervalued,” according to preliminary analysis by IMF economists.

International Monetary Fund