China: A Global Growth 'Bright Spot'

GDP growth forecast at 9½ percent, inflation falling to around 4 percent

Key policy challenge to accelerate ongoing economic transformation

Financial sector reform will be central

Role of China in global economy continuing to grow

But China’s key policy challenge now will be to accelerate the ongoing transformation of its economic model toward one that is more linked to domestic consumption and less reliant on exports and investment, the IMF said at the conclusion of its annual Article IV discussions on the economy.

“China continues to be a bright spot in global growth,” said IMF Acting Managing Director John Lipsky at a Beijing press conference. “We see this continuing and, thus, maintain our growth forecast for both this year and next at around 9½ percent. Inflation has clearly become a much more pressing social concern over the past year. However, we expect that many of the drivers behind inflation will soon start to dissipate and inflation should fall to around 4 percent by year-end.”

Lipsky praised China’s part in helping counter the global recession through extra government spending. More recently, the steps taken by the Chinese authorities to tighten monetary policy, normalize credit growth, and withdraw fiscal stimulus were fully appropriate.

“The measures that the authorities have progressively taken to slow down the rise in real estate prices are having the desired impact,” he told reporters. “However, China still has a propensity for property bubbles driven by high savings, cheap financing, low carrying costs, and the lack of alternative investment instruments. Any durable solution will need to involve broader financial development, a higher cost of capital, and increased real estate taxation.”

Emphasis on the financial sector

The IMF team, led by Nigel Chalk, Senior Advisor of the Asia and Pacific Department, visited Beijing, Shanghai, and Chengdu from May 23 to June 9 to conduct the annual review.

Lipsky and Anoop Singh, Director of the Asia and Pacific Department, joined the final policy discussions and met with Vice Premier Wang Qishan, People’s Bank of China Governor Zhou Xiaochuan, and Finance Minister Xie Xuren.

With the financial sector growing and evolving rapidly, the team for the first time conducted a Financial Sector Assessment Program (FSAP).

Citing the FSAP analysis, Chalk said it showed that important progress has been made in moving to a more market-based financial system. Nevertheless, China still...