IMF says China's economy to grow 7.5%, stresses implementation of reforms

The Chinese economy is expected to grow about 7.5 percent this year and implementation of reforms would help the country achieve a more balanced and inclusive growth, the International Monetary Fund (IMF) said on Wednesday.

"Domestic demand has been moderating, reflecting slower investment and rising risks of a deeper adjustment in real estate activity. However, measures taken by the authorities to support growth are expected to bring it in line with the annual target of around 7.5 percent," the Washington-based institution said in its annual Article IV Consultation Staff Report for bChina.

"Consumption and the labor market are holding up well, and the global recovery is expected to support activity going forward. Inflation is forecast to remain below 3 percent," the report said.

China's external imbalances have fallen, said the IMF, as the current account surplus declined to 1.9 percent of GDP last year.

Executive directors of the Fund agreed that China's growth prospects are threatened by declining efficiency of investment, a significant buildup of debt, income inequality and environmental costs.

"The challenge is to shift gears, reduce the vulnerabilities that have built up, and transition to a more sustainable growth path. In this regard, directors welcomed China's Third-Plenum reform blueprint and agreed that the implementation of these reforms will help China achieve more balanced and inclusive growth," said the report.

Markus Rodlauder, IMF's mission chief for China, told reporters in Washington that "the issue now is implementing it. Successful implementation will move the economy to a more inclusive and environmental friendly and sustainable growth path."

IMF's executive directors underscored the importance of strengthening the financial sector to safeguard stability and improve the allocation of credit.

They also emphasized the need to reform state-owned enterprises with the aim of leveling the playing field between the private and public sectors.

To reduce risks of the economic growth, the directors suggested that China cut off-budget spending, further rein in credit expansion, and contain investment growth. Such measures would affect China's near-term growth but will benefit the country in a medium and long term.

Rodlauder said China's slower growth in the near term will be offset by the much higher income over the medium term, which will also benefit the world economy.

Regarding the growth target for China in 2015, most directors agreed that a range of 6.5 to 7 percent would be consistent with the goal of transitioning to a safer and more sustainable growth path, while the report expected China will increase 7.1 percent next year.

As defined by its Articles of Agreement, the IMF holds bilateral discussions with members, usually every year. The IMF staff visit the country for the annual economic consultation and afterward prepare a report which forms the basis for discussion by the Executive Board.