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IMF / CHINA ECONOMY
STORY: IMF / CHINA ECONOMY
TRT: 3.45
SOURCE: IMF
RESTRICTIONS: NONE
LANGUAGE: ENGLISH / NATS
DATELINE: 23 JUNE 2011, WASHINGTON, DC
WASHINGTON, DC, RECENT
1. Wide shot, exterior IMF HQ
23 JUNE 2011, WASHINGTON, DC
2. SOUNDBITE (English) Nigel Chalk, Mission Chief for China, IMF:
“Article IV Consultation with China I think found China continuing to be a global bright spot for growth. We expect growth this year to be in the 9-10 percent range. Inflation has been a concern over the past year, particularly a social concern. Our view is that inflation is close to peaking and will soon start to decline in the second half of this year. The other focus of the Staff Report this year and the Consultation was on rebalancing, and particularly on the financial sector aspects of rebalancing the Chinese economy and how the financial sector reform and China can contribute to moving the economy away from reliance on exports and towards more of a consumption driven economy.”
WASHINGTON, DC, RECENT
3. Wide shot, interior IMF HQ
23 JUNE 2011, WASHINGTON, DC
4. SOUNDBITE (English) Nigel Chalk, Mission Chief for China, IMF:
“I think we’ve looked quite carefully at the financial system and the current financial system is quite tightly controlled. There are limits on the amounts the banks can lend; the government directly regulates deposit and loan rates. I think what we’re trying to look for is moving toward a more market-based system of financial intermediation in China. And that will need reforms on a number of fronts. It will need changes to the way monetary policies are conducted in China. It will also need a stronger exchange rate in order to give the monetary authorities a little bit more autonomy in deciding monetary policy. There will need to be changes in the supervisory and regulatory regime and eventually they’ll need to move towards liberalization of deposit and loan rates. This whole process will be quite a long term process. We see it taking at least five years to put all of these reforms in place. And I should add that this process is actually quite risky so the government has to be quite careful in both how it designs its reform program and how it sequences these reforms. Because we’ve seen in international experience a number of countries who have tried to liberalize their financial system in this way and have either created instability or even crises in some cases.
WASHINGTON, DC, RECENT
5. Wide shot, exterior IMF HQ
23 JUNE 2011, WASHINGTON, DC
6. SOUNDBITE (English) Nigel Chalk, Mission Chief for China, IMF:
“What we see in China right now is a move by the monetary authorities to withdraw monetary stimulus as the economy moves back to a much stronger growth path. We think that’s fully appropriate. The way that stimulus is being withdrawn so far has relied more on quantitative limits on credit growth and less on use of more traditional monetary policy tools like interest rates. And we’d like to see a somewhat shift in that balance towards a greater reliance on using interest rates to slow down credit growth and less on the administrative controls.”
WASHINGTON, DC, RECENT
7. Wide shot, exterior IMF HQ
23 JUNE 2011, WASHINGTON, DC
8. SOUNDBITE (English) Nigel Chalk, Mission Chief for China, IMF:
“What we’ve seen over the past year -- I think there has been some moderation in property price inflation in China, we think that’s a good thing. A large part of that has been driven by the measures the government has taken in order to prevent people from speculating in the property market and also to provide more supply of housing into the markets. So those have been very positive policy actions. Nevertheless, I think when we look at the financial system and the property market in particular in China there’s still a very strong propensity for property bubbles in their current system.”
WASHINGTON, DC, RECENT
9. Med shot, exterior IMF HQ sign
23 JUNE 2011, WASHINGTON, DC
10. SOUNDBITE (English) Nigel Chalk, Mission Chief for China, IMF:
“I think the findings of that report show China to be very central in the global economy. Now at a point where not only it will transmit shocks through the global economy but it’s also able to originate shocks outward towards the global economy. I think in discussions with China’s partners as part of that spillover report process, there was a lot of interest in their partner countries in rebalancing in China, in moving China towards a more consumption driven model. I think generally the sense was that moving China in that direction, raising household income in China, improving the living standards of the Chinese people will actually have very positive spillover effects to the global economy and to the trading partners.”
WASHINGTON, DC, RECENT
1. Wide shot, exterior IMF
Financial liberalization will be essential in transforming China’s economic model to one of more inclusive growth, raising household income, boosting domestic consumption, and reducing the reliance on exports as an engine of growth, say IMF economists in their annual assessment of the world’s second largest economy.
In their regular Article IV report, IMF economists focused on the need to revamp China’s financial system with a comprehensive set of reforms that strengthen the conduct of monetary policy, improve the financial stability framework, develop financial markets and savings vehicles, and move toward more market-determined loan and deposit interest rates. The assessment follows a visit by a team of economists led by Nigel Chalk, the IMF’s mission chief for China.
This year, for the first time in China, the IMF, in collaboration with the World Bank, also conducted an assessment of the health of the Chinese financial system under the Fund’s Financial Sector Assessment Program (FSAP). The FSAP marked the culmination of over a year of work by Fund, World Bank, and outside financial sector experts.
The Article IV report notes that, currently, China’s system leaves many depositors short-changed with deposit rates well below the rate of inflation. While this helps to sustain high levels of corporate investment and foreign currency intervention, it conflicts with many of the objectives of the government’s 12th Five Year Plan.
The Article IV report recognized that financial liberalization was likely to be a complex and lengthy process, which would need to be carefully sequenced.
The annual report also discussed the main near-term risks to the Chinese economy including the danger of rising inflation. IMF economists expect inflation to decline in the second half of this year—it rose to 6.4 percent in June—as the impact of higher food prices eases somewhat.
In recent years, many China watchers have been concerned about the threat of a property price bubble in Asia’s largest economy, where the property sector directly makes up 12 percent of GDP.
In their report, IMF economists said they did not see imminent risks of a major downturn in the sector, but they warned that as long as the cost of financing continues to be low, and other investment options remain limited, “the propensity for property bubbles will remain.”
The FSAP report concluded that China had made “remarkable progress” in its transition to a more market-based and financially sound system. Consequently, the banking sector had entered the global financial crisis from a position of relative strength.
But the report noted that the country’s financial sector was confronting several risks not only from rising real estate prices and economic imbalances, but also from a likely worsening of credit quality following the enormous injection of stimulus in response to the global financial crisis.
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