Consumer demand, property help keep momentum
The IMF is keeping its forecast for China's 2018 economic growth unchanged at 6.6 percent on Wednesday, but warned that overly rapid credit growth and trade frictions could pose risks for the world's second-largest economy.
China's economy grew 6.8 percent in the first quarter of 2018, slightly faster than expected, buoyed by strong consumer demand and surprisingly robust property investment.
Earlier in January, the IMF raised its forecast for China's economic growth this year to 6.6 percent from 6.5 percent. The Chinese government in March set a full-year growth target of around 6.5 percent.
Economists expect growth to slow to 6.5 percent this year from 6.9 percent in 2017, citing rising borrowing costs, tougher limits on industrial pollution and a crackdown on local government spending.
China should further rein in credit growth, said James Daniel, mission chief for China and assistant director of the Asia & Pacific Department at the IMF.
"There hasn't been any deleveraging in the real economy. Let's be clear of that. What has happened is the rate of increase of debt has slowed quite significantly," Daniel told reporters, following a visit by an IMF team to Beijing and Shenzhen this month.
The government is in the third year of a regulatory crackdown on riskier lending practices, which has slowly pushed up borrowing costs and is pinching off alternative, murkier funding sources for companies such as shadow banking.
But even as the Chinese government cracks down on the country's credit risks, China has only seen a modest uptick in defaults so far.
"Now of course there's a risk that you go from very few defaults to quite a lot. And for a market and for investors that are not used to that, that can be pretty destabilizing," said Daniel.
Trade frictions also pose a risk for China's economy, Alfred Schipke, senior resident representative at the IMF, told reporters, when asked about the impact of the ongoing tensions with the U.S.
