BEIJING - TheIMF on Wednesday said China’s economy is on course to grow 7.75 per cent in 2013 — higher than the government’s own 7.5pc target and actual growth of 7.6 per cent in the first half of the year. Prospects for the world’s second-largest economy were “clouded by mounting domestic vulnerabilities in the financial, fiscal and real estate sectors”, the IMF said in a statement. But it still expected it to grow at “around 7.75 per cent this year, notwithstanding a moderate slowdown during the first half.
, with resilient domestic demand offsetting lingering weakness in the external environment”.
The optimism comes after private economists expressed alarm following slowing growth the past two quarters, with some doubting the government can achieve its target.
The National Bureau of Statistics announced Monday that China’s gross domestic product (GDP) grew 7.5 per cent year-on-year in the April-June period.
That represented a deceleration from the first quarter’s 7.7 per cent, which in turn was worse than 7.9 per cent in the final three months of 2012.
China’s economy, a key engine of global growth, grew 7.8 per cent last year, its worst performance since 1999.
The IMF’s latest assessment of 7.75 per cent growth is unchanged from late May when it downgraded its outlook from the previous 8.0 per cent. The institution also sees Chinese growth barely changing in 2014, at 7.7 per cent.
The Fund’s statement comes at the conclusion of regular “Article IV consultations” between the Washington-based IMF and Beijing.
The IMF “welcomed China’s continued strong economic growth with subdued inflation” but urged it to “contain risks to financial stability by reining in credit growth and non-traditional forms of lending”.
A cash crunch roiled Chinese financial markets late last month before the central People’s Bank of China, which had ordered banks to strengthen liquidity management, moved to calm nerves with an offer of support.
The turmoil, though brief, highlighted mounting concerns over excessive lending by banks and other problems in China’s financial system, including opaque non-bank forms of lending, often called “shadow finance”.
The IMF also warned of continuing “external risks” for China in the form of “potential spillovers from developments in the euro area and major advanced economies”.
China’s yuan currency “remains moderately undervalued”, the Fund said, adding that a “more market-based exchange rate system would facilitate further internal and external rebalancing”.
Beijing has faced pressure from the United States, the European Union and others for the yuan to appreciate amid claims its value is artificially low.
The currency has gained about 35 per cent against the US dollar over the past eight years.
The Fund also welcomed China’s goal of retooling its economic model to one based more on consumption.
Such a “reform strategy... charts a path toward mitigating risks, rebalancing growth, and addressing income disparities, thus safeguarding China’s important contribution to global growth”, the Fund said.