China needs to keep on promoting high-quality economic growth despite rising trade tensions with the United States, a senior International Monetary Fund (IMF) official said Wednesday.
“Our overarching advice is to keep the policy focus on switching to high-quality growth from high-speed growth, even if trade tensions increase,” Kenneth Kang, Deputy Director of the Asia and Pacific Department at the IMF, told in a written interview after concluding the annual Article IV consultation to review the Chinese economy.
The IMF team, led by Kang, held highly constructive and candid discussions with senior officials from the Chinese government, private sector representatives and academics over the past two weeks to exchange views on economic prospects, reform progress, and policy responses.
“Good progress has been made in the last couple of years, especially in reducing the growth of credit and risks in the financial system,” Kang said.
The IMF official suggested that Chinese authorities maintain focus on deleveraging and regulatory tightening, boost consumption while allowing investment to slow, increase the role of the private sector and openness to trade and investment, as well as modernise policy frameworks.
So far the impact of trade tensions with the United States on China’s economy has been “contained,” as the overall economic growth “has been steady,” Kang noted, adding that he expects China’s economy to grow at around 6.2 percent in 2019.
“If there is no further deterioration in trade tensions, we expect growth to slow modestly and appropriately to about 6 percent” next year, he said.
“The policy stimulus announced so far is sufficient to stabilise growth in 2019/2020 despite the recent U.S. tariff hike,” David Lipton, the IMF’s first deputy managing director, said in a statement released Wednesday on the IMF’s Article IV mission to China.
Kang suggested that some additional temporary stimulus could be appropriate if the trade tensions escalate further, but “this stimulus should be contained and focused on rebalancing, boosting growth sustainably.”
While the rise of U.S.-China trade tensions will have an effect on global supply chains, it is too early to say exactly what those effects will be, according to Kang.
“The development of sophisticated, cross-border supply chains has helped drive the expansion of global trade, allowing more countries to participate and benefit from its growth,” Kang said, encouraging all parties to work to uphold “an open, transparent, rules-based international trade system.”
As for the renminbi exchange rate, Kang said it was “broadly in line with” medium-term fundamentals and desirable policies in 2018, and the IMF welcomed the increased flexibility of the exchange rate in response to market forces.
The IMF official also said the China-proposed Belt and Road Initiative (BRI) has great potential to foster regional cooperation in the areas of trade, investment and finance.
“The initiative could bring much-needed infrastructure and connectivity to countries, which in turn could support trade and growth,” he said.
Kang said he believed that the key is to implement the BRI projects well, including ensuring high project quality, debt sustainability and encouraging private sector participation, so as to minimise the risks while maximising the benefits.
“We are encouraged by the intention of the government to address these issues in the recent BRI conference, in particular, increasing the focus on debt sustainability,” he said.
The IMF is working with the Chinese authorities to share best practices on issues related to fiscal sustainability, and stands ready to further strengthen its engagement with the Chinese authorities and BRI partner countries, including via the China-IMF Capacity Development Center in Beijing, the official added.