Salient to Investors:
David Lipton at the IMF said:
- IMF lowered its forecast for China’s growth to 7.75 percent in 2013 and 2014
- Decisive policy changes would put the economy on a more sustainable path.
- The record expansion of credit is concerning, and China has significant but narrowing policy space and financial capacity to maintain stability even in the face of adverse shocks.
- China’s current monetary and fiscal policies are appropriate, and the IMF is not suggesting China restrict credit now.
- The yuan remains moderately undervalued against a basket of currencies and a stronger yuan over time is needed to redress the issue. Further progress is needed on relaxing controls on interest rates and the exchange rate.
- China has assured the IMF that reining in credit expansion is a priority, while rapid growth in financing raises questions over the quality of investment and the repayment ability of companies and local governments.
- Curbing credit expansion may slow growth in the short-term while putting the economy on a more sustainable path.
- China needs a decisive push for rebalancing toward higher household incomes and consumption, and should allow more competition in industries currently considered strategic and increase dividends from state-owned enterprises to improve financial discipline and provide additional fiscal revenue.
- China should strengthen governance in lower-level state or state-related economic institutions, especially the banks, state-owned enterprises and local governments.
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