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China Recognizes Its Rebalancing Needs, IMF said
Apr 23,2012 09:48CST
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Source:SMM
China needs to boost consumption to avoid new domestic imbalances, and its 12th Five-Year Plan recognizes this, the International Monetary Fund director for Asia and the Pacific said Friday.

BEIJING, Apr. 21 (Xinhua) -- China needs to boost consumption to avoid new domestic imbalances, and its 12th Five-Year Plan recognizes this, the International Monetary Fund director for Asia and the Pacific said Friday.

Anoop Singh, speaking on the first day of this year's IMF-World Bank spring meetings, pointed out that raising household income and thus consumption would alleviate the imbalance risk, and the Five-Year Plan for 2011-2015 recognizes this imperative.

Chinese consumption has decreased as a percentage of GDP lately, although in absolute terms it is still increasing rapidly, Singh said.

Boosting consumption through more socially inclusive and environmentally sustainable growth was a key objective of the 12th Five-Year Plan, approved by the National People's Congress in March.

A guideline on the development of retail sector released by the Ministry of Commerce in February says China aims to increase the total retail sales of consumer goods by 15 percent each year over the next five years.

"Our concerns on China, one that is certainly shared by authorities, is that so far it looks like this is being driven much more by investment and not enough by consumption," Singh said of recent declines in China's current account surplus. "The challenge of this investment-led growth is to sustain in a way that does not allow new domestic imbalances to come in place of external rebalance."

The National Bureau of Statistics last week reported that spending by households and the government proved resilient, contributing a surprising 76 percent of GDP in the first quarter of 2012, up sharply from an average of 41.6 percent during the past decade.

In the latest World Economic Outlook released by the IMF on Tuesday, China's GDP growth will slow this year to 8.2 percent but rebound in 2013, driven by domestic consumption. The report also predicts Beijing will avoid an abrupt slowdown of its overheated economy, which grew by as much as 9.2 percent during 2011.

In the same report, the IMF reined in earlier forecasts of increases in China's current account surplus. In September the fund forecast a 7 percent increase.

"Our current predictions show that it may go up probably close to 4 percent, 4.5 percent [of GDP] whereas in the previous year we projected it to go up to much more," Singh said.

The latest report attributes the change to several factors including a secular decline in trade.

China's current account surplus dropped to about 2.7 percent of GDP in 2011 from over 10 percent in 2007. That metric is likely to remain subdued while the economies of China's two biggest trading partners - the European Union and the United States - struggle, respectively, with recession risks and anemic growth.

Questions about the valuation of the yuan were also raised during Singh's briefing on Asia-Pacific matters. The IMF official said the issue is under review and assessments of the currency's valuation can be expected "in the coming months."

 

China's rebalancing needs; IMF

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