Despite concerns about a slowdown in China's economic growth, a senior official at the International Monetary Fund (IMF) has expressed optimism about the world's second-largest economy, saying it could still bring great benefits to China and the global economy.
"We should welcome, not fear, a slowdown in China" because the economy is moving to a "slower, but safer and more sustainable growth path," Steven Barnett, a division chief in the Asia and Pacific Department of the IMF, said Friday at a panel discussion on economic growth in Asia organized by the Center for Strategic and International Studies.
Since the global financial crisis in 2008, "the pattern of growth in China has been unsustainable" and has resulted in rising vulnerabilities, including the surging credit, rapid rise in investment, strong growth in shadow banking and real estate market, Barnett said.
Acknowledging the unsustainable growth pattern, Chinese government has taken measures to address those vulnerabilities, and a slowdown is a natural result of this process, Barnett said.
"We have slower credit growth, especially a reduction in shadow banking, less investment, especially because of adjustment in the real estate market, and strengthening management and oversight of local government financing. All those things point to slower growth, but also safer growth," said the former IMF resident representative to China.
Barnett said China's economic growth rate is expected to slow further to around 6.75 percent this year from 7.4 percent in 2014, its weakest expansion since 1990, but noting that China has " considerable buffers" to manage this process of slowing growth.
China has outlined a comprehensive reform agenda at the third plenum of the 18th Communist Party of China Central Committee in late 2013, which will help transform the economy to a "more sustainable, more inclusive and more environment-friendly" growth model, he said.
Barnett said China has made a lot of progress in economic reforms in the past year, but "more work needs to be done," citing further reforms in the financial sector and state-owned enterprises (SOE) as two priorities.
On the financial front, China needs to finish interest rate liberalization, introduce a policy interest rate, and break the implicit guarantees between savers, intermediaries and borrowers, he said, noting that removing implicit guarantees is very critical for improving allocation of credit and resources.
In terms of SOE reforms, Barnett said China should "level the playing field to ensure there is room for the dynamic private sector firms to compete, grow and create jobs, especially in service sectors."
Looking back, Barnett said China's economic success reflects China's willingness to undertake bold reforms at critical junctures, citing the examples of SOE reforms in 1990s and joining WTO in 2001, which paved the way for China's strong growth in the early and mid-2000s.
"What we need today is another wave of similar type of reforms, this time in the service sector," he said.
Given China's size in the global economy, Barnett said the whole world will also benefit from a more balanced and sustainable growth in China and a expanding Chinese market.
"Slower growth in China today, as part of moving to a more sustainable growth path, means much higher income in the future," he said, adding that China has been contributing more than a quarter of global growth since the global financial crisis.
Adam Posen, president of Peterson Institute for International Economics, echoed his view, saying rebalancing China's economy towards a domestic-demand led growth means more imports in Asia, moving up the value chain and more investments in the region.
