China requires bold structural reforms for new sources of growth: IMF

By MoneyTimes

Aug 17, 2015 09:41 AM EDT

Though China's growth rate is slowing down, the world's second-largest economy can bounce back to regain the momentum and manage the risks involved, observes International Monetary Fund (IMF).

China growth is revised down to 6.8% for 2015 and 6.3% in 2016 as against its 7% in 2014.The Chinese government has put tabs on credit growth in order to check other vulnerabilities that impact the economy in a negative way.

The stringent measures taken by the Chinese government are ensuring economy slowdown in an order not to take a toll on the country's prospects. The dragon country requires bold structural reforms for creating new sources of growth. 

IMF in its latest annual assessment of the Chinese economy opined that though it was slowing down, the economy is safer and can achieve more sustainable growth. The recent turmoil in the stock market wouldn't impact much on the slowing down of the economy. The country needs moderation in real estate investment. 

While highlighting the need for bold structural reforms in China, IMF mission chief for China Markus Rodlauer said in the assessment report: "The challenge now is to take the next steps to a more open and market-based economy." 

IMF suggests China to go for an effective floating exchange rate in the near future. Allowing market forces to determine the exchange rate is ideal in the new economy. This would give an influential role for market forces to integrate with the global economy. IMF further notes that China should accept its slower growth in short-term and take bold steps for sustainable growth in the long run. For this China has to take bold steps. 

After the global economic crisis, the dependence of excessive credit and investment has led to more vulnerabilities in different industrial verticals including real estate, finance, and corporate sectors. The new reform agenda taken by the Chinese government has started providing results in reducing some vulnerabilities, observes IMF. 

Last week, China depreciated its currency the yuan value by 1.9% and this biggest one-day fall in the past decade had created tremors in the global markets. Chinese government had decided to devalue its currency as it was overvalued. IMF also appreciated the measures taken by the dragon country on depreciating the currency value.

IMF also opined that the slowdown in the economy was a deliberate measure to wean China from over-dependence on exports. The growth in investment is estimated to be 5.8% in 2015 lower than 2014 year's 7.6%. 

The labor market in China is ok in the wake of economy slowdown. The major reason for this stability in the labor market is a shift in focus from manufacturing to services segment. The Chinese government prefers to check the unnecessary funds inflow into real estate and the industry.

As part of the new strategy, the world's second-largest economy is planning for slow, but steadier growth based on consumer spending. The consumer spending growth is likely to go up from 6.9% in 2014 to 7.1% in 2015.

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