China's strong growth momentum is expected to help the country achieve safer and more sustainable growth over the medium and long term, a senior official at the International Monetary Fund (IMF) has said.
"The strong momentum gives room to accelerate reforms," James Daniel, assistant director of the Asia and Pacific Department of the IMF and its mission chief for China, told Xinhua in a recent interview, adding: "Now it is time to do so."
China's economy expanded 6.9 percent in the first half of the year, well above the government's yearly target of 6.5 percent, according to data released from the National Bureau of Statistics last month.
Daniel, who led a mission to China in June to conduct the annual Article IV review of the Chinese economy, said the IMF increased its outlook for China's growth rate and debt levels over the next three years, and underscored the importance of monitoring China's debt risks.
"These risks must be addressed if strong growth is to be maintained at a safe manner. That requires reforms to make growth less reliant on credit, less reliant on debt, less reliant on investment," he said.
Daniel said a lot of China's reforms are underway in the right direction, noting that "overcapacity has been reduced and the framework for local governments to borrow has been improved."
He also commended China's increased focus on reducing financial stability risks and welcomed China's move to set up a new financial stability and development committee under the State Council so as to strengthen coordination on financial supervision.
Daniel said he believes that China's authorities understand the importance of taking advantage of strong growth to pursue necessary reforms, as "they intensified focus on financial stability risk since the third quarter of last year" when the economy grew stronger.
"I think once the risks of a sharp slow-down has retreated, then they indeed were more confident about addressing the risks," he said. "That's exactly the right attitude."
While controlling risks in the financial sector is important, China also needs to move to other parts of the economy to deal with debt problems and there is more work to be done, said the IMF official.
In terms of corporate debt risks, Daniel noticed that "the pace of growth of corporate debt has slowed down recently," which reflected overcapacity reduction, the government's restructuring initiatives and the cyclical recovery of growth of trade and producer prices.
He suggested China continue deleveraging in the private sector and rely more on market forces to allocate credit to companies that use it more productively.
Daniel also offered several recommendations for boosting China's consumption, including making the tax system more progressive, increasing government spending on health, pension and education, and continuing reforms of the hukou, or household registration system.
While the U.S. Federal Reserve is expected to begin unwinding its balance sheet in September, with a further rate hike in December, Daniel did not expect the Fed's tightening monetary policy to have a major impact on China's economy, noting that pressure from capital outflows has eased this year.
However, "the significantly fast and unexpected hike cycle in the extreme environment" could lead to large losses of foreign exchange reserves and eventually a potential disruptive exchange rate depreciation, he warned.
"But we think that risk is relatively small, we all think the current levels of reserves are ample," he said, reiterating that moving toward more flexibility in the exchange rate regime will help China avoid such risks.
China's foreign exchange reserves rose for a sixth consecutive month in July, reaching 3.081 trillion U.S. dollars, according to the People's Bank of China.
Daniel said the IMF did discuss with Chinese authorities the risk to international trade, including potential trade conflict between the United States and China. He encouraged the two sides to seek global trade solutions that will benefit both countries.
(Source: Xinhua)
