BEIJING: China must carry out promised reforms and rebalance its economy to stem financial risks, the International Monetary Fund (IMF) said Tuesday, as it pointed to slowing growth over the next two years.
The IMF estimated that the world’s second-largest economy will grow 6.8 percent in 2015 before slowing to 6.3 percent in 2016, maintaining its previous predictions from January.
“For China, the main risk is failure to implement the reform agenda to address financial risks, rebalance the economy, and tap new sources of growth,” the Washington-based Fund said in its latest World Economic Outlook.
“Without reforms to change the pattern of growth, vulnerabilities will continue to increase, and the available policy space will shrink,” it added.
The expected decline in growth from last year’s 7.4 percent comes “as previous excesses in real estate, credit, and investment continue to unwind”, it said, describing “an unsustainable pattern of growth that has led to rising vulnerabilities in the corporate, financial, and government sectors”.
The IMF’s estimate for this year matches the median forecast in an AFP poll of 15 economists earlier this week.
The National Bureau of Statistics will release the official gross domestic product (GDP) figures for the first quarter on Wednesday. China’s GDP probably expanded 6.9 percent in January-March, the AFP survey showed, down from 7.3 percent in the final three months of last year.
Separately, the World Bank said on Monday that China’s economy should grow by 7.1 percent in 2015, slower than the 7.2 percent rate it projected in October.
The Chinese government in March announced an official growth target of about 7.0 percent for this year, below last year’s objective of about 7.5 percent.
The forecasts come as Beijing seeks to transition China’s economy from its old model of investment-fuelled growth that resulted in years of double-digit GDP expansion but is now seen as unsustainable.
Authorities have expressed a willingness to accept lower growth rates as they try to make consumer spending the key driver of activity.
But investment remains crucial and the IMF cited its possible intensified deceleration, including in real estate, as a near-term risk, after a slowdown last year that followed a 2009-2012 boom.
“Some further slowdown is already factored into the baseline, but it could be stronger than expected, as striking a balance between reducing vulnerabilities, supporting growth, and implementing reforms remains challenging,” the report said.
It specifically called for resource allocation efficiency to be improved with reforms in financial and state-owned enterprises.
“Reforms in the pension system and other social safety net areas will help shift the composition of growth toward domestic consumption, which is likely to prove more sustainable in the long term,” it added.
The IMF also forecast that China’s consumer inflation rate will fall to 1.2 percent this year after hitting 2.0 percent last year, before rebounding to 1.5 percent next year.
Beijing is forecasting consumer inflation of about three percent for this year.
Economists have expressed concerns about the risk of deflation in China, especially after January’s slump in consumer inflation to 0.8 percent, the lowest since November 2009.