## Transcript of a Conference Call on the China Article IV _IMF News, August 14, 2015_ ## Source details **Canonical URL:** [Transcript of a Conference Call on the China Article IV](https://www.imf.org/en/news/articles/2015/09/28/04/54/tr081415a) ## Other formats - [Markdown version](/en/news/articles/2015/09/28/04/54/tr081415a/index.md) - [Structured JSON version](/en/news/articles/2015/09/28/04/54/tr081415a/index.json) - [Bundle manifest](/en/news/articles/2015/09/28/04/54/tr081415a/bundle-manifest.json) ## Bibliographic details - Published: August 14, 2015 --- ### Overview and growth projections - IMF staff project GDP growth at 6.8 percent for 2015, down from 7.4 percent in 2014. - Staff noted the 6.8 percent forecast has been below consensus forecasts and that recent high-frequency indicators are consistent with the momentum built into the 6.8 percent forecast. - The slowdown from 2014 is broadly in line with the authorities' own target of around 7 percent and Staff's recommended range of 6.5 to 7 percent. - Near-term domestic and external risks are considered low, given existing buffers and policy tools. ### External position and exchange rate - IMF staff estimate a substantial real effective appreciation of about 15 percent as of July 2015. - Staff view that the renminbi has been brought to a level that is "no longer undervalued." - The external position is still assessed as "moderately stronger than fundamentals," implying a need to reduce excess savings and achieve sustained external balance over the medium term. - Recent exchange rate adjustments in August 2015 included a depreciation of less than 3 percent over several days; staff state this does not change their assessment that the currency is no longer undervalued. - The central parity mechanism change links the central parity more closely to the previous day's closing spot rate; the existing trading band is plus/minus 2 percent. - Theoretically, under the new mechanism the exchange rate could move by 10 percent in a week (based on band mechanics and central parity adjustments), but actual outcomes depend on implementation and any central bank interventions. ### Structural reforms and vulnerabilities - Authorities have embarked on a comprehensive reform program; considerable work remains in financial, fiscal, state-owned enterprises, and external sectors. - Reform priorities identified: - Move to a more market-based financial system. - Improve management of government finances. - Level the playing field between state-owned enterprises and the private sector. - Achieve an effectively-floating exchange rate within 2 to 3 years. - Insufficient progress in containing vulnerabilities and advancing structural reforms is identified as the biggest risk to the outlook; realization could result in a disorderly correction and/or a protracted period of slower growth. ### Financial markets and stock market developments - China's equity market experienced a sharp correction in mid-June after a preceding rally. - IMF staff assess the correction as unlikely to have a large effect on the real economy and not yet posing systemic financial risks. - Government measures to support the market are "useful to prevent disorderly market conditions" but should be unwound as soon as possible to restore market orientation. ### Policy recommendations and IMF advice - Greater exchange rate flexibility is important for China as it integrates into global financial markets and seeks market determination of prices. - Staff welcome the change toward a more market-determined central parity mechanism, viewing it as a step toward greater flexibility. - IMF advice emphasizes limiting intervention to smoothing during transition and gradually moving toward a float within two to three years. - The faster the progress on reforms, the sooner growth-enhancing benefits will materialize. ### Key statistics and precise figures cited - GDP growth projections and targets: - IMF staff projection for 2015: 6.8 percent. - 2014 GDP growth: 7.4 percent. - Authorities' target: around 7 percent. - Staff recommended growth range: 6.5 to 7 percent. - Staff outlook aligned with May consultation: growth this year of around 6.8 percent; government forecast around seven percent. - Exchange rate and external metrics: - Real effective appreciation: about 15 percent (as of July 2015). - Earlier estimate at time of EBA/Article IV assessment: 12.5 or 13 percent appreciation. - Recent depreciation noted: less than 3 percent over several days. - Trading band: plus/minus 2 percent. - Theoretical possible move under new mechanism: 10 percent in a week. - Other terminology preserved: - Total social financing (TSF). - External balance assessment (EBA). ### Q&A highlights - IMF staff clarify they do not endorse moves in any specific direction (appreciation vs. depreciation) but welcome system changes that allow greater market determination. - Staff emphasize that implementation details and central bank actions will determine how close the system moves toward a true free float. - IMF discussions with Chinese authorities showed broad agreement on long-term objectives (market determination, independent monetary policy, flexible exchange rate), but immediate operational intentions were not the subject of detailed disclosure during consultations. - Sectoral outlook: secondary sector indicators (electricity production, industrial value added) show slower growth while the tertiary (service) sector remains resilient and is becoming a larger share of the economy; the labor market and consumption indicators are holding up well. *Transcript of a Conference Call on the China Article IV — August 14, 2015* --- ## References - [People's Republic of China and the IMF](http://www.imf.org/external/country/CHN/index.htm) - [IMF Policy Advice -- A Factsheet](https://www.imf.org/en/about/factsheets/imf-surveillance) - [Transcripts](https://www.imf.org/en/news/searchnews) - [PRESS CENTER](http://presscenter.imf.org/) - [https://www.imf.org/en/home](https://www.imf.org/en/home) _Source: https://www.imf.org/en/news/articles/2015/09/28/04/54/tr081415a_