China has made progress on reforms but should allow market forces to play a more decisive role and accelerate its opening up to the rest of the world, the International Monetary Fund said.
While credit growth has slowed, it remains too fast, and policy makers should de-emphasize growth targets and focus on higher-quality growth, the fund said in a statement released Wednesday in Beijing at the conclusion of its mission for the 2018 Article IV Consultation.
Embracing market forces means reducing public sector dominance over many industries, opening markets to the private sector, and ensuring competition, the fund said, adding that the trade and investment remain restrictive. The fund’s recommendations chime with the criticisms that the Trump administration has leveled at Beijing in the course of the current trade dispute.
“Faster opening up would not only support China’s own high-quality growth agenda, but also benefit the global economy,” the IMF said in the statement. “Recent efforts to defuse trade tensions are welcome and efforts should continue to seek a negotiated settlement that strengthens the global economy.”
The comments came hours after U.S. President Donald Trump saying he’ll move ahead with tariffs on $50 billion of Chinese imports, and ahead of Commerce Secretary Wilbur Ross’s return to Beijing this week for more talks from June 2. The IMF encouraged all sides to ease trade tensions and strengthen multilateral trade and investment.
The IMF’s senior resident representative for China, Alfred Schipke, told reporters at a briefing that rising protectionism is a risk and unilateral actions can be counterproductive. He added that the country’s further opening of its financial sector should be gradual.
China’s economic expansion will likely slow to 6.6 percent this year and to about 5.5 percent by 2023, according to the IMF. Economists surveyed by Bloomberg project 6.5 percent growth this year. Reforms have made progress in safeguarding the financial sector, slowing credit growth, reducing overcapacity, cutting pollution and opening up the economy, the fund said.
The IMF report also recommended:
- Placing less emphasis on economic growth targets and instead focusing on high-quality expansion to re-balance the economy, even if it means somewhat slower overall growth
- Slowing the too-rapid pace of credit growth will require less public investment, tighter controls on borrowing by state enterprises, and curbing household debt growth
- Monetary policy should “continue to become more price, rather than quantity, based, and the exchange rate should continue to become more flexible”
The fund cautioned last year that deep reforms are still needed to break away from debt-fueled expansion and that China should use its growth momentum to push reforms through. It later raised its estimate for the average annual growth rate through 2020, while warning that it would come at the cost of rising debt that increases medium-term risks to growth.
IMF First Deputy Managing Director David Lipton took part in the latest policy talks with senior officials including Vice Premier Liu He, People’s Bank of China Governor Yi Gang, Finance Minister Liu Kun and China Banking and Insurance Regulatory Commission chief Guo Shuqing.
“To be an effective and credible leader of better globalization, China should continue to address the distortions that still beset its economy and affect cross-border trade and investment,” Lipton said in a statement released with the report. “China would benefit from exposing sheltered sectors and firms to more domestic and foreign competition, ensuring a level playing field, and better protecting intellectual property rights.”
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