IMF: China can transition

Updated: 2015-09-02 11:09

By Chen Weihua in Washington(China Daily USA)

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Speaking in Jakarta, Lagarde describes slowdown as not sharp and not unexpected, but could get 'bumpy'

The International Monetary Fund (IMF) chief has dismissed the notion that the Chinese economy is having a meltdown.

Christine Lagarde, the IMF managing director, said in Jakarta, Indonesia, on Tuesday that as China's economy adjusts to a new model, growth is slowing. But she described the slowing down as "not sharply, and not unexpectedly".

"The transition to a more market-based economy and the unwinding of risks built up in recent years is complex and could well be somewhat bumpy," she said.

Lagarde believes the Chinese authorities have the policy tools and financial buffers to manage the transition.

She warned that other emerging economies, including Indonesia, with which China is a major trade partner, need to be vigilant to handle potential spillovers from China's slowdown and tightening of global financial conditions.

The IMF chief said that global growth overall is expected to remain moderate and likely weaker than the IMF anticipated last July, citing a weaker than expected recovery in advanced economies and a further slowing in emerging economies, in particular in Latin America.

Lagarde called Asia a region that is still expected to lead global growth, but the pace is turning out to be slower than expected, and it may slow even further, given the recent spike in global risk aversion and financial markets volatility.

In a report released on Aug 14, the IMF said that the Chinese economy is entering a slower but better growth mode. However, it calls for more reforms and less government intervention.

In the report on the annual Article IV Consultation with China, the IMF said China is transitioning to a new normal, with slower yet safer and more sustainable growth. Growth this year is forecast to slow further from last year's 7.4 percent to 6.8 percent, on the back of lower investment, especially in real estate.

The IMF consults annually with each member government. Through these contacts, known as Article IV Consultations, the IMF attempts to assess each country's economic health and to forestall future financial problems.

Markus Rodlauer, deputy director of the IMF Asia & Pacific Department and Mission Chief for China, said upon the release of the report that the organization is confident that the growth is on target toward around 7 percent.

Nicholas Lardy, a senior fellow at the Peterson Institute for International Economics, described investor panic about a China economic crisis following the recent stock and currency market tumbling as a false alarm.

Writing in The New York Times on Aug 26, Lardy, a noted economist on China, said there is little evidence that its economy is slowing significantly from the 7 percent pace reported by the Chinese government for the first half of the year.

Citing various economic fundamentals, Lardy said that the recent stock market and currency fluctuation "does not yet look remotely like a financial crisis".

"Rather than a financial and economic meltdown, China is experiencing an overdue correction in its equity market. And the connection between China's equity market and China's real economy has always been tenuous," he wrote.

Lardy said recent events should be seen as part of the conscious liberalization and rebalancing of the Chinese economy.

"Even if that means a selloff in stocks, it is not a selloff in the fundamentals of the Chinese economy. In fact, this may strengthen those fundamentals by going further down the path to reform," wrote Lardy, author of Markets over Mao: The Rise of Private Business in China.