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Beijing can launch new stimulus, says IMF
Published on: 2009-07-23
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China has room to launch another stimulus aimed at increasing domestic consumption and swinging the economy away from its dependence on exports, the International Monetary Fund said on Wednesday.


The report came even as the World Trade Organisation said China was set to overtake Germany as the largest goods exporter this year, underlining what many economists see as the need for China to export less and consume more.


In a long-delayed assessment of China’s economy, the IMF report praised the country’s efforts to stimulate its economy. But it added that, given the low level of public debt, it saw “further room for a targeted, additional stimulus aimed at increasing private consumption through near-term fiscal measures to raise household income”.


The IMF’s executive directors suggested reforms to healthcare, education and pension systems which would make people feel better about saving less and spending more.


It also said unemployment would probably rise as China tried to rebalance the economy and jobs were lost in export sectors. However “over a longer horizon, the employment gains from rebalancing towards domestic consumption and an increase in service sector employment should outweigh short-term losses”.


The economic assessment is meant to be issued annually but had been blocked by China until now over fears about how the IMF would label its currency, which some complain is kept unfairly low to make exports more competitive.


IMF directors were divided over that issue, according to the report. Some thought the renminbi remained “substantially undervalued” and should be strengthened as part of a “comprehensive strategy to rebalance the economy”. Others said it was difficult to make exchange rate assessments and the currency would only play a “supplementary role”.


The issue is a source of constant friction between the US and China, and is likely to be raised next week when top officials from the two countries meet in Washington for a “strategic and economic dialogue”. Some US lawmakers want to put sanctions on Chinese goods because of its currency policy, but the Obama administration has backed away from confrontation.


International financial institutions expect China to reap quicker trade benefits from a global upturn later this year that will be led by emerging economies.


“Our figures showed that Asian countries may be leading a recovery in global trade,” Pascal Lamy, WTO director-general, told reporters in Singapore at a meeting of trade ministers of the Asia-Pacific Economic Co-operation forum.


Last year, China’s merchandise exports of $1,428bn (€1,004bn, £869bn) were only slightly behind Germany’s $1,465bn, according to the WTO report.


Meanwhile, China, which notched up year-on-year growth of nearly 8 per cent in the second quarter, remains the top destination for future foreign direct investment (FDI), according to a survey by the United Nations Conference on Trade and Development released on Wednesday. The 240 multinationals that responded to the questionnaire put the US in second place, followed by India, Brazil and Russia.

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