IMF raises growth forecast for China

The IMF on Monday raised its annual growth forecast for China in 2014 by 0.3 percentage points to 7.5 percent, indicating a more upbeat view of China's economic prospects.

The new forecast is in line with the annual growth target of 7.5 percent set by the central government in March, but still slower than the growth of 7.7 percent last year.

"China's planned reforms, against the background of rising vulnerabilities, are far-reaching and have the potential to transform the economy," the IMF said in its Regional Economic Outlook for Asia and Pacific, released Monday.

"Implementation will be key. The reforms could enhance welfare by boosting private consumption and making growth more sustainable, although the economy could initially slow down somewhat," the report said.

"Lifting the annual GDP growth forecast suggests the IMF is optimistic about China's economy and expects reform to bring new impetus to economic growth," Zhuang Jian, a senior economist with the Asian Development Bank, told the Global Times on Monday.

The IMF report also said China needs to "slow the growth of credit, especially in the shadow banking sector, and minimize the buildup of risks in the financial sector without causing a steep deceleration in growth."

Continued interest rate liberalization and slower money supply growth are needed, even if economic growth comes in slightly below the official target, the IMF said.

The State Information Center (SIC), a Beijing-based government think tank, said in a report released by the China Securities Journal on Monday that China's economy will grow by around 7.4 percent in the second quarter, amid downward pressure and growing financial risks.

China's GDP grew by 7.4 percent year-on-year in the first quarter, down from the 7.7 percent growth in the previous quarter and the weakest growth since the third quarter of 2012.

China's top leaders have said that the country will remain committed to reform and economic restructuring and will not use significant short-term stimulus measures to boost the economy.

In the most recent confirmation of this policy stance, Xi Jinping, general secretary of the Central Committee of the Communist Party of China (CPC), said at a meeting of the Political Bureau of the CPC Central Committee on Friday that China will maintain the continuity and stability of macroeconomic policy and the current fiscal and monetary policy will remain unchanged.

"The economic slowdown in the first quarter has increased expectations for stimulus," Zhuang said, adding that "reforms will be postponed if stimulus is rolled out."

"China cannot follow the old path of resorting to stimulus. If it does, it will be even more difficult to get rid of the side effects of stimulus, and China will pay a higher price in the future," Zhuang said.

There have been increasing signs that consumption is set to play a larger role in the economy, and efforts to cool down credit growth, raise the cost of capital, and dampen investment growth should continue, the IMF said Monday.

China is in the middle of a process of shifting away from an investment-led growth model to one driven more by private consumption. It is too early to objectively evaluate the success of China's rebalancing, DBS Bank said in a research note e-mailed to the Global Times on Monday.

The good news is that companies will have numerous opportunities during the transition because the growth rate of China's private consumption is among the highest in the world. The value of and incremental growth in China's consumption dwarves that of other countries, the note said.