IMF: China Must Set Less Ambitious 2015 Growth Target

China should set an economic growth target of 6.5% to 7% for 2015 and refrain from rolling out "broad-based" stimulus measures unless the world's second-largest economy threatens to slow sharply from that level, the International Monetary Fund has said.

Most of its directors held that view, though some felt that an even-lower growth target was "more appropriate", the IMF concluded in its Economic Consultation with the People's Republic of China.

The IMF also reiterated its forecast that China's economic growth will dip to 7.4% in 2014, as against Beijing's 7.5% growth target, and decelerate further to 7.1% in 2015.

Realty and Reforms

Weakness in China's property sector posed near-term risks for the economy despite signs of steadying, Markus Rodlauer, deputy director of the IMF's Asia Pacific Department and the fund's mission chief for China, said.

Such near-term risks in the economy remained controllable owing to the Communist regime's policy buffers, but Beijing must drive reforms as the current path of growth is unsustainable, Rodlauer added, reported Reuters.

The fund urged lawmakers to free up bank deposit interest rates, remove implied guarantees in the financial and corporate sectors, and open more industries up for competition.

The IMF said in a statement: "Regarding the growth target for 2015, while most directors concurred that a range of 6.5-7 percent would be consistent with the goal of transitioning to a safer and more sustainable growth path, a few other directors considered a lower target more appropriate."

"Nevertheless, Directors agreed that vulnerabilities have risen to the point that containing them is a priority and broad-based stimulus should only be deployed if growth risks slowing significantly below the authorities' target. If such stimulus becomes necessary, it should be applied through fiscal policy, on-budget, with measures aimed at protecting the vulnerable and advancing reforms," the IMF added.

PNC senior international economist Bill Adams said in a 23 July note to clients: "Solid consumption and export growth should offset weak investment and deliver 7.5% real GDP growth in 2014 and 7.3% in 2015. This growth rate, falling short of China's potential real GDP growth rate of about 8%, should keep inflation modest by Chinese standards...

"Over the medium-term, growth will likely slip even further below trend..."

"Medium-term headwinds look to send real GDP growth down to 6% in 2016, the slowest since 1990.

"What could possibly slow the China juggernaut? A perfect storm of weakening credit, weak reinvestment of retained earnings, and a housing correction," Adams added.