WASHINGTON: The International Monetary Fund (IMF) on Friday offered a generally positive picture of China’s economic performance along with optimistic predictions of continuing development.
The IMF report came a day after Chinese President Xi Jinping warned at a Brics summit meeting in South Africa that there would be “no winners” in a trade war among the world’s major economies.
“The Chinese economy continues to perform strongly. GDP growth accelerated to 6.9 per cent in 2017, driven by a cyclical rebound in global trade,” the IMF’s annual “Article IV” consultative report noted.
China’s growth, however, could weaken slightly to 6.6pc in 2018 owing to the lagged effect of financial regulatory tightening and the softening of external demand, the report added. But it also noted headline inflation in China has remained contained at around 2pc and is expected to rise gradually to 2.12pc.
The report came in the middle of a deepening trade war between the United States and China which, the IMF warns, poses a serious risk to global stability.
Last week, US President Donald Trump threatened to impose tariffs on every dollar of imports from China, which exceeded $505 billion in 2017. Earlier this month, the Trump administration also identified a further $200bn in Chinese goods it may target for tariffs, for a total of $250bn.
In another report, released on July 25, the IMF warned that external imbalances in world’s key economies had global implications. Urging China to negotiate a settlement to ease trade tensions, the IMF said that its trade rift with the US would affect the international trading system and the global economy.
The 120-page document report on China, published talks with Chinese officials in May last year, the IMF noted China’s GDP growth of 6.9pc, was a 0.2pc increase from 2016 and the first uptick in economic growth since 2010. The report also highlighted signs of success in Beijing’s efforts to change financial regulation, reduce overcapacity and combat pollution.
“A wide range of regulatory reforms reduced financial sector risks, overcapacity reduction progressed, anti-pollution efforts intensified and opening-up accelerated recently,” the IMF added.
“Credit growth slowed significantly, but remained strong. While the corporate debt to GDP ratio stabilised, total nonfinancial sector debt still rose faster than nominal GDP growth.”
The report also noted that deficit of the general government sector — including estimated off-budget investment spending — was estimated to be around 11pc of GDP in 2017.
The current account surplus fell by 0.4pcage points to 1.4pc of GDP in 2017. It is projected to narrow to 0.9pc of GDP in 2018, driven by deteriorating terms of trade.
Net capital outflows declined sharply from $646 billion in 2016 to $73bn in 2017. The RMB was broadly stable against the basket of currencies in 2017 and was assessed to be broadly in line with fundamentals.
The IMF, however, was cautious in predicting the economic fallout for China of its trade war with the US.
The report pointed out that the 25pc tariff on $50bn worth of Chinese imports announced several months ago – $34bn of which has already been imposed – would account for just 0.4pc of China’s GDP. Further duties on $200 billion in goods threatened by Trump in early July would translate to 1.7pc.
Published in Dawn, July 28th, 2018