July 26, 2018 / 10:11 PM / 3 months ago

IMF says China growth robust, urges Beijing to stick to reform plan

BEIJING (Reuters) - China’s economy continues to perform strongly, the International Monetary Fund said on Friday, with growth expected at 6.6 percent this year, a slightly slower rate than last year’s 6.9 percent.

A container ship of COSCO Shipping sails at sunset in Hong Kong, China July 11, 2018. Picture taken July 11, 2018. REUTERS/Bobby Yip

The economic growth estimate was unchanged from the IMF’s last forecast made in May. The IMF raised its estimate for China’s growth in 2018 in January after the economy unexpectedly accelerated last year.

While the IMF praised China’s progress on reducing financial sector risks and in further opening its economy, it said credit growth was still unsustainably high as some aspects of the country’s rebalancing had slowed.

Beijing has over the last two years sought to rein in rapid credit growth, which economists and analysts say will result in slower growth in the near term but is needed to avoid a sharp slowdown and the risk of a financial crisis longer term.

The IMF said China needs to stick to its deleveraging agenda while implementing much-needed fiscal reforms and economic rebalancing.

“China is at an historic juncture. After decades of high-speed growth, the authorities are now focusing on high-quality growth,” the report said.

“Whether and how this shift is carried through will determine China’s development path for decades to come.”

Economic growth slowed slightly to 6.7 percent in the second quarter as Beijing’s efforts to contain debt hurt activity, sparking concerns the economy was slowing faster than expected.

Beijing has taken steps to increase credit to small firms and has said it will adopt a more active fiscal policy, though it will refrain from a repeat of strong stimulus to boost economic growth.

The IMF said “China’s near-term outlook remains robust due to strong domestic momentum, recovering global trade, and significant reform progress”.

But the IMF cited widespread state intervention, a still relatively closed economy, and a slowdown in rebalancing toward consumption last year as challenges, and reiterated its long-standing call for China to de-emphasize growth targets.

The IMF said China’s headline inflation is expected to rise gradually to around 2.5 percent, while producer price inflation would moderate.

Reporting by Elias Glenn; Editing by Jacqueline Wong

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