WASHINGTON, US – China should take steps to rein in runaway economic growth or face the possibility of a “boom-bust cycle,” the International Monetary Fund said. In its annual assessment of the Chinese economy, the IMF also said that many of its analysts consider it “appropriate” for Beijing to stick with a policy of promoting “gradual and controlled” exchange rate movements.
WASHINGTON, US – China should take steps to rein in runaway economic growth or face the possibility of a "boom-bust cycle," the International Monetary Fund said. In its annual assessment of the Chinese economy, the IMF also said that many of its analysts consider it "appropriate" for Beijing to stick with a policy of promoting "gradual and controlled" exchange rate movements.
IMF directors "commended the authorities for sustaining high economic growth and noted that China’s prospects for the future remain favourable, provided that the risks and challenges faced by the country are addressed," the report said. IMF staff are projecting economic growth in China to remain "around 10 %" in 2006, but only if authorities take steps to check investment. "Unless these policy actions are taken, GDP growth could easily exceed the 10 % forecast," the report said. "In the near term, a significant risk remains that macroeconomic policies will not be sufficiently tight to contain investment growth. In particular, there is a need for monetary policy to prevent a surge in credit growth from tipping off a boom-bust cycle and an associated rise in banks’ nonperforming loans." Chinese vice premier Zeng Peiyan said Sunday the government would continue to improve its macroeconomic controls but would focus on "economic and legal measures," to restrain growth.
In the currency area, since China de-linked its currency from a decade-long peg to the dollar in favour of a basket of currencies, the Yuan has strengthened by about 2%. China meanwhile promised a gradual reform and argued that the country’s fragile financial system cannot yet handle the volatility of a freely floating exchange rate.