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No hard landing for Chinese economy, says IMF chief

Publication Date : 04-04-2014

 

China will see reduced growth, but there will be no hard landing for the world's second-largest economy, International Monetary Fund (IMF) managing director Christine Lagarde has said.

And while a Chinese economy losing steam and tempers rising over territorial disputes may have rattled some nerves in the region,  Lagarde still holds Asia as a bright spot in a global economy that is slowly turning the corner.

Speaking to The Straits Times at her office in the United States capital on Wednesday ahead of the spring meetings of IMF next week, she downplayed recent concerns that a weakening Chinese economy could derail economic growth throughout the region.

"If it was a hard landing, it would be a problem. But we don't see a hard landing. We see slightly reduced growth, sustainable and (of) better quality," she said.

She argued that the fall from double-digit growth a few years ago to 7.5 per cent last year was part of the progression of the economy.

She noted the Chinese economy has diversified such that its engine is not purely driven by exports. "(It is) gradually roaring on three cylinders rather than one or two - by that I mean not only exports, but exports, investment and consumption - it's only natural that the economy would slow down a little bit."

A decline in Chinese manufacturing output last December, capping a year in which China experienced its slowest economic growth since 1999, has caused global markets to dip and the price of commodities to fall.

Global financier George Soros even described the slowdown as a bigger threat to the global economy than stagnation and debt in Europe.

Much of the concern surrounds the idea that China can no longer grow on the basis of being the world's factory, and is not yet taking up the structural reforms needed to move on from that model.

Lagarde, however, said her interactions with Chinese leaders have convinced her that Beijing is serious about reform.

"We believe the Chinese authorities have a good understanding of what the challenges are and what reforms need to be taken. I was in China two weeks ago and that was the impression I got, very strongly."

She is also optimistic that the other major threat hovering over the Asian economy - geopolitical instability triggered by competing territorial claims in the East and South China seas - will not come to pass.

"When an economic power reaches the size of China and is the second-largest economy in the world, it comes with responsibilities, and I think the Chinese authorities are very much aware of the responsibilities they have (not only) for their population, for their country, but also (for) the stability of the world."

As a whole, she said, the global economy is on the mend although growth is still too slow.

 

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