China should shift away from quantitative targets in favour of economic projections, and turn more attention to building so-called soft infrastructure to guide the functioning of the markets, the International Monetary Fund (IMF)’s China representative said in Beijing yesterday.
The country was now at a “critical juncture” in its economic transformation as old drivers returned last year to ensure its annual growth target, said Alfred Schipke, the IMF’s senior resident representative to China.
Smog is a good indicator of such a credit-financed and construction-focused investment model, which the IMF believes is unsustainable in the long run.
“If you continue with the model, your debt level continues to rise, then the risks of a hard landing in the future also rise,” said the co-author of the just published book Modernizing China – Investing in Soft Infrastructure, inwhich he urges China to step up systematic reforms when economic growth remained the “fairly ok” range of 6 per cent to 6.5 per cent.
China largely returned 6.7 per cent growth last year, while most institutions estimate an increase of about 6.5 per cent in 2017. The Washington-based fund updated China’s 2016 growth forecast to 6.6 per cent from 6.3 per cent early in 2016 in this year’s World Economic Outlook to be released tomorrow.
“It might be the time for China to move away from quantitative targets,” said Schipke, and replace them with projections that major advanced and emerging market economies follow.
Emphasising other indicators like employment or income growth will give the government more room to move and alleviate the pressure to rely on low-quality and credit-financed investment to support growth, he said.
These moves would China a greater chance of move towards market-oriented allocation of resources, the ultimate goal set by President Xi Jinping at the Third Plenum in November 2013.
Meanwhile, Zhu Min, the former deputy managing director of the IMF, said at a forum in Shanghai yesterday that China would have an upper hand in negotiations with the the United States if a trade war broke out under the incoming administration of Donald Trump.
“Major US exports to China, such as aircraft and raw materials, are more exposed to China’s policy stance, while China’s exports to the US are more market driven, leaving China with more bargaining power,” Zhu told the Shanghai Finance Forum.
US president-elect Donald Trump threatened during his presidential campaign to impose a 45 per cent punitive tariff on imports from China.
Additional reporting by Maggie Zhang
Article source: http://www.scmp.com/news/china/article/2062219/china-should-opt-more-appropriate-economic-indicators-says-imf