(Corrects headline and paragraphs 1 and 9 to show that the IMF
was recommending that China target a growth rate of around 7
percent next year rather than cutting its own forecast for
BEIJING, June 5 The International Monetary Fund
(IMF) recommended that China adopt an economic growth target of
about 7 percent for 2015 and urged authorities to avoid further
stimulus measures and concentrate on curtailing financial risks
In remarks that projected confidence about the near-term
health of the world's second-biggest economy, the IMF said
Beijing must keep its word on implementing reforms that will
correct imbalances, including a "moderately undervalued" yuan.
Specifically, the fund said conditions are right for China
to take the next step in freeing its interest rates market,
challenging the view among some senior Chinese officials that
the country is not yet ready for such a move.
"We are not counselling stimulus at this point," IMF's First
Deputy Managing Director David Lipton told reporters in Beijing,
when asked if he thought China's government should do more to
shore up flagging economic growth.
"We don't think there are sufficient signs that would
Rather, he said the bigger threat to China is its persistent
reliance on debt and investment in areas such as real estate to
power its economy, weaknesses that are growing and which will
hurt it in the long run if they are not corrected.
So unless China's economy is at risk of missing the
government's growth target of about 7.5 percent this year by a
substantial margin, Lipton said more stimulus is unwarranted.
"Vulnerabilities have risen to the point that containing
them should be a priority," he said, noting that the IMF
believes China can hit its economic growth target for 2014.
For next year, the fund recommended that Beijing adopt a
growth target of around 7 percent - a level that Lipton said is
realistic if China was to carry out extensive financial reforms
as it has promised. The fund itself has projected growth of 7.3
percent in 2015.
Beijing has announced a series of modest stimulus measures
in recent months after the economy got off to a weak start this
year. Business surveys in the last week signal activity may be
starting to stabilise but a slight pick-up in parts of the
economy does not mean a solid, broader recovery is under way.
The economy's lacklustre performance has stirred speculation
that the government may act more forcefully to shore up
activity, even though Beijing has ruled out any big policy moves
to counter short-term dips in growth.
MODEST DEBT, BUT RISING
China has vowed to embrace comprehensive reforms that are
likely to stifle activity in the near term, in order to
re-orient its economy and let domestic consumption replace
exports and investment as the mainstay sources of growth.
Experts say the painful transition is necessary if China
wishes to break into the ranks of high-income economies.
Of the needed changes, the IMF highlighted tax and fiscal
reforms, an insurance for deposits and a removal of state
control over deposit rates.
It said authorities must also increase their tolerance of
corporate defaults and bankruptcies, and intervene less in the
currency market to interfere with the value of the yuan.
"Conditions are right for the next step in deposit rate
liberalisation," Lipton said, adding that some limited insurance
for deposits should be established as soon as possible.
China restricts how much banks pay savers for their deposits
in part to protect bank profits, a move analysts say distorts
economic reality and encourages wasteful investment by
artificially lowering the cost of credit.
But Yi Gang, a deputy governor at China's central bank, was
quoted by the Chinese media as saying in April that China is not
ready to allow markets to determine interest rates.
He said this is because local governments can use their
political power to force banks to lend to them regardless of the
level of interest rates. Furthermore, a free rates environment
would inevitably lift borrowing costs, increasing the burden on
firms at a time when China's economy is already struggling.
(Reporting by Koh Gui Qing; Editing by Kim Coghill and Simon