The International Monetary Fund has made an overall positive assessment of China’s economy, in a press conference on June 14 on its annual Article Four Staff Report. IMF economists drafted the report after talking with Vice-Premier Ma Kai, as well as top officials from the central bank, and banking and securities regulators.
The IMF report begins by saying that the organization recognizes that China is a country in the middle of a huge transition, adding a moderate slowdown in growth is a natural result of such a process. It said overall reforms across key areas in the economy have been, to quote, “impressive”.
“We think that the process of rebalancing the economy with growth in household sector, household income and consumption, and downsizing and rightsizing of older sectors that are bound to be not as important in the future. That’s a process that’s underway,” said David Lipton, IST Deputy Managing Director of IMF.
But the IMF also said progress of reforms had been uneven. Transition from an industry to services-based economy has been smooth, and there has been substantial liberalization of the financial market. But on the other hand, the organization said more needs to be done to address China’s rising debt levels, both at local government level and across corporations. The IMF assessed the country’s current corporate debt level to be around 145 percent of GDP, a figure it deems too high to be safe, and one it says could threaten hard-earned recent positive growth outlook. Lipton says the problem is still manageable, and Chinese officials are well aware of it. He said they are in the process of getting to grips with it.
“Zombie companies need to be dealt with. There are plans that had been put together to deal with the coal and steel sectors which are two of the important sectors where downsizing would be needed. There are plans to do some pilot restructuring. It’s a process that will surely take some time to put in place,” said Lipton.
Lipton said corporate restructuring, coupled with recent measures such as debt to equity swaps, will gradually see positive results in the future. He added that government debts should also be lowered in the process, through reforms such as aligning fiscal revenues and spending responsibilities, implementing a new budget law and modernizing the tax system.
The IMF said China is at the critical juncture in its development path. However, given the government’s successful track records of reform in the past three and a half decade and its commitment to do the same in the future, the agency said it is quote, confident, that the country will conquer its economic challenges.