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IMF Warns Danger of China Growth Slowing to 4Pct After 2018

07-19 15:26 Caijing
Time is running out on the current model which has relied on extensive growth—factor accumulation and relocation of labor from the countryside to factories

The International Monetary Fund (IMF) warned that China’s GDP growth is likely to slow to 4percent beyond 2018 if the country doesn’t accelerate reforms in its current growth model.

Time is running out on the current model which has relied on extensive growth—factor accumulation and relocation of labor from the countryside to factories, said IMF in its latest country report on China.

Without accelerating reform, China’s economy is likely to slow to around 4 percent and GDP per capita would remain about a quarter of that of the United States, the IMF warned.

“Growth has moderated, even as investment has risen and reliance on credit has increased, pointing to diminishing returns to the current model,” it noted.

With demographic trends implying a decline in the labor force after 2015 and exhaustion of surplus labor around 2020, the returns on investment would be progressively lower than envisaged, which would cause bankruptcies and financial losses, said IMF in a dire warning.

IMF suggested China take a wide range of additional reforms, including  Opening markets,resources pricing and SOE dividends to support the transformation to more balanced, inclusive, and sustainable growth.

It added that service sector reform and Hukou reform would help lifting factor productivity, also known as “intensive” growth.

“Hukou reform would support the urbanization process and boost productivity by enabling knowledge spillovers and specialization,” said the IMF.

The package of reforms, however, will likely entail slower growth as the economy adjusts to the new path, said IMF, adding that it will offer more durable and sustainable long-term growth and higher consumption.

China’s GDP growth slowed further to 7.5percent from 7.7percent in the previous quarter, latest official statistics showed.

IMF estimated that its economy is expected to grow by around 7¾ percent this year, despite weak and uncertain global conditions. China’s full-year target stays at around 7.5 percent.

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