TOKYO, Jan 29: An International Monetary Fund official on Monday urged China to shift its focus to stimulating domestic demand, in part by providing more social welfare, to cut its reliance on exports.

The Chinese banking system has poured money into heavy industrial investment but shied away from lending to small-and medium-size businesses, said Steven Dunaway, deputy director of the IMF Asia and Pacific Department.

“With the population of 1.3 billion people, China has a huge domestic market. It does not need to rely on exports for economic growth,” he told a symposium in Tokyo.

Rapidly growing fixed asset investment has driven Chinese economy in recent years but the money may have been more efficient going to other areas, such as social welfare and education, he argued.

“You have very heavy investment in very capital-intensive industries in a country that has a tremendous amount of surplus labour,” Dunaway said.

Calling on China to make structural changes while its economy is strong, Dunaway said that improved public education, healthcare and pension systems should ensure sustained growth.

“This will do a lot in terms of boosting consumption,” by increasing household disposable incomes, he said, adding China has been reluctant to do so as it lacked a comprehensive plan for public welfare and education.

Soaring investment has also caused overcapacity and the lowering of prices of finished goods, he said.

“Banks still have a tendency to lend primarily toward state-owned enterprises and heavy industries so a lot of funding is flowing to very capital-intensive industries and a very little money goes to small-, medium-sized enterprises,” he said.

Individual Chinese have high levels of savings but most only have the option to put their money into bank deposits, he said.

“Banks have heavy responsibility in terms of being able to channel those funds. They have not done a very good job of it as illustrated by very large non-performing loans that have been in the banking system,” he said.

As a result, “China has managed to generate a large number of jobs but relative to the amount of investment, they are not generating as many jobs as you might expect,” he said. —AFP