China growth stable despite challenges

IMF recommends lowered targets, but says govt has 'policy buffers' to maintain expansion

The world's second-largest economy should set a less ambitious economic growth target of 6.5-7 percent for 2015 and make the implementation of reforms a top priority to put the country on a more sustainable growth trajectory, the IMF said on Thursday (Beijing Time).

China's economy is estimated to grow 7.5 percent for this year, according to an IMF's annual Article IV Consultation Staff Report for China. The projection remains unchanged from the institution's forecast in April.

"Regarding the growth target for 2015, while most Directors concurred that a range of 6.5 to 7 percent would be consistent with the goal of transitioning to a safer and more sustainable growth path, a few other Directors considered a lower target more appropriate," the IMF noted.

The IMF advised China to prioritize implementation of a package of financial, fiscal, external, and social security reforms to secure more balanced and sustainable growth.

During the short term, credit and shadow banking, local government finances and the corporate sector, particularly real estate, are key areas of rising vulnerability, the Washington-based institution said in its report.

Risks are rising but manageable over short-term, because the government has plenty of policy buffers, Steve Barnett, China division chief of Asia and Pacific Department at the IMF, said in a video accompanying the press release.

Since the 2008 global financial crisis, China has relied on unsustainable quantities of investment and credit to drive growth, Barnett said.

The major risk in the property sector is the oversupply in smaller cities and increasing unmet demand in large cities, Zhuang Jian, chief China economist for the Asian Development Bank (ADB), told the Global Times on Thursday.

China's once red-hot real estate market has lost steam, with sliding home sales and prices, especially in smaller cities since the first quarter of this year, leading to sliding land sales revenues, a major contributor to local government coffers.

To revitalize the market, more than 30 local governments have eased four-year restrictions on home purchases.

The short-term relaxation may support the economy in the short run, but its effect will be very limited, Zhuang said.

The ADB forecast in April that China's economy will grow 7.5 percent for this year and 7.4 percent for 2015, but will release a new projection later this year.

Property investment accounts for 16 percent of China's GDP, and weakness in this sector is expected to drag down the country's economic growth a full percentage point, Hua Changchun, an economist at Nomura Securities, told the Global Times on Thursday.

The government's recent "mini-stimulus" measures, including increasing railway investment, tax breaks for small businesses and targeted lending, are intended to make up for the slowdown of the property sector, and help China to attain its 7.5 percent growth target for the year, according to Hua.

However, a potential jump in inflation, to an estimated 3.3 percent, may not leave policymakers as much room for policy easing in 2015 as in this year, he said. Nomura projected this year's inflation rate to be 2.4 percent.

China's GDP grew 7.5 percent in the second quarter of 2014, up 0.1 percentage point from the first quarter, and in line with the government's target rate.

China will make stable investment a key driver of economic growth in the second half of the year by opening more sectors to private capital and further cutting red tape to better tap the power of markets, the National Development and Reform Commission said in a statement on Thursday.

In October, the country will hold the Fourth Plenary Session of the 18th Central Committee of the Communist Party of China, where economic issues will hold a major place on the agenda, the Xinhua News Agency reported on Tuesday, quoting the country's Politburo - a top Party decision-making body - as saying.

The economy is sustainable only when quality growth is guaranteed, the People's Daily reported on Thursday, citing Liu Shijin, deputy director of the Development Research Center of the State Council.