IMF Mission Completes 2011 Article IV Consultation Discussions with China
Press Release No. 11/225
June 9, 2011, Source: IMF website
An International Monetary Fund (IMF) team, led by Mr. Nigel Chalk, Senior
Advisor of the Asia and Pacific Department, visited Beijing, Shanghai and
Chengdu from May 23 to June 9 to conduct the annual Article IV review of
the Chinese economy. The team held wide-ranging discussions with senior
officials from the government, the People’s Bank of China, private sector
representatives, and academics, to exchange views on prospects for the
economy and the challenges ahead. The IMF's Acting Managing Director, Mr.
John Lipsky, and the Director of the Asia and Pacific Department, Mr.
Anoop Singh, joined the final policy discussions and met with Vice Premier
Wang Qishan, People’s Bank of China Governor Zhou Xiaochuan, and Finance
Minister Xie Xuren.
The mission team also conducted for the first time a Financial Sector
Assessment Program (FSAP) review, and held discussions on the spillover
effects of Chinese policies on the global economy in the context of the
latest Article IV consultation. The FSAP is a comprehensive and in-depth
analysis of a country’s financial sector, and is a key instrument of the
Fund’s surveillance and provides input to the Article IV consultation.
At the conclusion of the visit, the mission issued the following statement:
“The Chinese economy remains strong and is forecast to grow at around 9½
percent in both 2011 and 2012 underpinned by solid domestic and external
demand. Inflation should soon peak and is expected to fall to around 4
percent by year-end. However, there are upside risks, from higher global
commodity prices or weather related food supply shocks in China.
“The steps taken by the Chinese authorities to tighten monetary policy,
normalize credit growth, and withdraw fiscal stimulus are fully
appropriate. A more balanced use of monetary policy tools, including more
reliance on interest rates and less use of direct administrative limits on
loan growth would help achieve the intended policy objectives more
effectively.
“The measures that the authorities have progressively taken to slow down
the rise in real estate prices are having the desired impact. However,
China still has a propensity for property bubbles driven by high savings,
cheap financing, low carrying costs, and the lack of alternative
investment instruments. Any durable solution will need to involve broader
financial development, a higher cost of capital, and increased real estate
taxation.
“Staff expect the current account surplus to begin to rise this year as
external demand recovers and the fiscal stimulus unwinds. A package of
policies, many of which are included in China’s comprehensive 12th
Five-Year Plan, will need to be deployed in the coming years to prevent a
reassertion of the current account surplus. Efforts will be required to
strengthen the social safety net, raise household income, liberalize the
financial system, and increase the costs of various inputs to production.
A stronger renminbi will be a key ingredient of this comprehensive package
of reforms and would very much be in China’s interest, helping to achieve
the objectives set out in the 12th Five-Year Plan.
“Drawing on the work of the FSAP, the mission particularly underlined the
importance of financial sector reform in ensuring a smooth transformation
of China’s growth model toward a more inclusive economy that is focused on
improving people’s livelihoods. A successful reform and liberalization of
the financial sector would boost household income, lessen both corporate
and household savings, improve the efficiency of investment, and mitigate
the risk of asset bubbles. A roadmap for reform should include a
strengthening of the monetary policy framework, improvements in the
regulatory, supervision and financial stability framework, development of
the financial markets, deregulating loan and deposit interest rates, and
eventually moving to an open capital account with the renminbi as a fully
convertible currency.
“The discussion and analysis undertaken for the upcoming spillover report
for China put in context why the agenda to transform the country's
economic growth model is so important to the rest of the world. The
positive outward spillovers from China will contribute significantly
toward a strong, sustained, and balanced global growth if economic
transformation is managed successfully. However, if that process moves too
slowly, and stresses from the current policy framework cause disruptions,
then the world will have to cope with a shock from a country with a
central position in the world trading system.”