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IMF / CHINA OUTLOOK
STORY: IMF / CHINA OUTLOOK
TRT: 02.04
SOURCE: IMF
RESTRICTIONS: NONE
LANGUAGE: ENGLISH / NATS
DATELINE: 15 JULY 2013, WASHINGTON DC. UNITED STATES / FILE
RECENT, BEIJING, CHINA
1. Wide shot, Beijing streets
15 JULY 2013, WASHINGTON DC.
2. SOUNDBITE: (English) Markus Rodlauer, Mission Chief to China, IMF:
“China’s financial system has a lot of margin still to address any shocks it may hit, so we are not in an imminent risk of crisis. Nevertheless, credit in the economy has been growing very fast in recent years, so there have been risks and vulnerabilities building up. So one of the priorities of the financial sector reforms is to reduce those risks to slow down the growth in credit, especially of the new forms of lending in wealth management products trust loans which have been booming in recent years. So the government is right in trying to slow down this momentum in the nontraditional lending particularly. At the same time, it’s important that the financial sector contribute to the transition of the economy to a new growth path, more consumer-based, more based on small- and medium-sized enterprises. And financial sector reform will do that if we liberalize the system more, if we give more of a role to market forces.”
RECENT, BEIJING, CHINA
3. Various shots, banks in Beijing
15 JULY 2013, WASHINGTON DC.
4. SOUNDBITE (English) Markus Rodlauer, Mission Chief to China, IMF:
“Many of the problems that are underlying this constant pressure in the housing market need also be addressed. For example, in the financial sector, currently households can mainly put their savings into bank deposits or into housing. If we create new ways of saving, new products, even if you opened a capital account so that some of the savings can go abroad, we will reduce this pressure for ever-rising house prices and create more affordable housing for the broad population.”
RECENT, BEIJING, CHINA
5. Various shots, apartment buildings
15 JULY 2013, WASHINGTON DC.
6. SOUNDBITE (English) Markus Rodlauer, Mission Chief to China, IMF:
‘We do see growing imbalances that need to be addressed and need to be corrected. In fact, the government does have a strategy to shift the economy more from a very heavy investment-led growth pattern to an economy that is more reliant on consumption, on the production of medium-and small-sized enterprises who produce products that can be consumed by a larger part of the society. And, therefore, this is also going to be a growth path that is more sustainable, that is more environmentally friendly, and that is also more inclusive because it will benefit a larger part of the population.’
RECENT, BEIJING, CHINA
7. Various shots, people shopping
China’s economy is expected to expand at broadly the same pace as last year, but risks of moderation have grown, say IMF economists. In their annual report on China’s economy, the economists emphasized the importance of reforms to secure more consumer-based and sustainable growth going forward.
“China’s financial system has a lot of margin still to address any shocks it may hit, so we are not in an imminent risk of crisis. Nevertheless, credit in the economy has been growing very fast in recent years, so there have been risks and vulnerabilities building up. So one of the priorities of the financial sector reforms is to reduce those risks, to slow down the growth in credit, especially of the new forms of lending in wealth management products, trust loans, which have been booming in recent years. So the government is right in trying to slow down this momentum in the nontraditional lending particularly. At the same time, it’s important that the financial sector contribute to the transition of the economy to a new growth path, more consumer-based, more based on small- and medium-sized enterprises. And financial sector reform will do that if we liberalize the system more, if we give more of a role to market forces,” said Markus Rodlauer, the IMF’s mission chief for China.
The resilience of China’s economy since the 2008 financial crisis has provided a welcome boost to global demand and substantial progress has been made in rebalancing China’s external accounts, said the report.
But it warned that the pattern of economic activity in the world’s second largest economy has become too reliant on investment and credit, resulting in rising domestic vulnerabilities in the financial sector, local government finances, and real estate.
The report noted that the measures put in place to limit real estate credit and speculative demand have helped, although price growth has picked up again recently. The real estate market remains prone to price run-ups underpinned by demand for housing as a vehicle for savings and store of wealth.
“Many of the problems that are underlying this constant pressure in the housing market need also be addressed. For example, in the financial sector, currently households can mainly put their savings into bank deposits or into housing. If we create new ways of saving, new products, even if you opened a capital account so that some of the savings can go abroad, we will reduce this pressure for ever-rising house prices and create more affordable housing for the broad population,” Rodlauer said.
The Chinese authorities have announced a broad range of reforms and policy objectives for 2013 that are intended to contain risks and rebalance growth, but the priority now should be to devise specific action plans and implement them swiftly, said the report.
This will ensure a smooth continuation of the historic transformation of the past three decades in which bold reforms have helped China generate rapid growth and lift more than 500 million citizens out of poverty, it added.
‘We do see growing imbalances that need to be addressed and need to be corrected. In fact, the government does have a strategy to shift the economy more from a very heavy investment-led growth pattern to an economy that is more reliant on consumption, on the production of medium- and small-sized enterprises who produce products that can be consumed by a larger part of the society. And, therefore, this is also going to be a growth path that is more sustainable, that is more environmentally friendly, and that is also more inclusive because it will benefit a larger part of the population,’ Rodlauer said.
The report emphasizes a more market-based and liberalized financial system as critical to prevent a further build-up of risks, achieve a more efficient allocation of investment, and boost household capital income.
The priorities are to liberalize interest rates; strengthen regulation and supervisory oversight; establish a robust, transparent framework for resolving bad debts and troubled financial institutions, which will help root out the widespread perception of implicit guarantees on most loans; and move to using interest rates as the primary tool of monetary policy.
Beyond the financial sector, the report outlines a range of additional reforms to strengthen governance, liberalize the economy, and rebalance domestic demand - opening markets to more domestic and foreign competition, especially service sectors and upstream industries currently reserved for state-owned enterprises (SOEs); raising resource prices and taxes to rationalize investment and protect the environment; increasing the dividends SOEs pay to the budget; and gradually opening the capital account, appropriately sequenced with financial sector and exchange rate reforms, to increase the range of available investment opportunities and ease pressure off the real estate market.
Rodlauer said that these reform directions and policy objectives were in line with the authorities’ recent announcements, but that timely and focused implementation will be crucial for success.
The report emphasizes that accelerating the reform process is critical to shift China’s growth path and avoid a sharp correction down the road, but notes this may entail a moderate slowdown in growth as the economy adjusts.
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