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IMF suggests growth target of 7% for 2015

Publication Date : 02-08-2014

 

The International Monetary Fund said on Friday that China should set an economic growth target of 6.5 per cent to 7 per cent for 2015.

Chinese economists said the IMF's prediction sounds too "pessimistic" and most think a growth rate above 7 per cent would be reasonable for next year.

Credit, shadow banking, local government finances and the real estate sector are the key and interlinked areas of rising risks facing the Chinese economy, Alfred Schipke, senior resident representative at the IMF, said at a news conference in Beijing on Friday.

"We recommend an upper bound of 7 per cent, with a range of 6.5 to 7 per cent. That will be a strong signal that you are moving ahead with your reforms and that these reforms will have some short-term adverse implications but that is necessary in order to create the fastest sustainable growth in the future," said Schipke.

Without a change in the pattern of growth, the hard-landing risk continues to rise and is assessed to be medium-likely over the medium term, the IMF said in a report.

The government still has a lot of buffers, such as low total government debt, large pool of public sector assets and high domestic savings, Schipke said.

"However, if China continues to rely on a growth model that is credit driven, the question is how you can move away from it because over time your buffers will diminish," he said.

"We have one key message, that is the government ought to be tolerating somewhat less growth. When you implement the reforms, what that means is in the short term growth might be less."

"For 2015, our recommendation is twofold; first move away from a point target to a range target - that is consistent with moving to a more market-based system. Second, if you are moving forward with these reforms, you might have to be willing to accept a lower growth target," he said.

Zhang Jianping, a researcher at the Institute for International Economic Research at the National Development and Reform Commission, said the goal suggested by the IMF is too "pessimistic".

"Risks of credit default exist, but it's unlikely to incur reactions like the domino effect due to the limited scale of China's financial derivative market. The government also has lots of command in the financial system," said Zhang.

Zhang said the growth goal for 2015 should be no lower than 7 per cent and a key factor to set the target lies in that the growth could ensure its employment rates stay high.

Hu Shaowei, a senior economist with the State Information Center and an economist of the People's Bank of China, agreed that China's economic growth rate in 2015 will equal or be above 7 per cent.

Another economist at the central bank, who declined to be named, said: "It has been a bit of a struggle to achieve a 7.5 per cent growth rate this year, a growth goal of 7 per cent would be reasonable for 2015."

 

 

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