China capable of withstanding shocks, reform remains priority: IMF

WASHINGTON -- The International Monetary Fund (IMF) said the Chinese economy has the capacity to withstand shocks, while accelerating growth model transformation remains its main priority.

In its annual China economic assessment report, the IMF said Wednesday that the world's second-largest economy "is expected to grow at around 7.8 percent this year, notwithstanding a moderate slowdown during the first half, with resilient domestic demand offsetting lingering weakness in the external environment."

The IMF predicted that the growth would pick up moderately in the second half of the year, as the lagged impact of recent strong growth in total social financing takes hold and in line with a projected mild recovery in the global economy.

The report also said inflation in China has continued its downward path, and is likely to remain subdued around 3 percent this year and next.

"Macroeconomic policies have been supportive toward achieving this year's growth target," said the IMF, noting that although substantial progress has been made in external rebalancing, domestic imbalances remain large in China with private consumption was broadly unchanged as a percent of the gross domestic product.

"Accelerating the transformation of the growth model remains the main priority, as reaffirmed in recent policy announcements by the new administration," said the IMF.

IMF's executive board concluded the Article IV consultation discussions with China on July 12. Executive directors welcomed China's continued strong economic growth with subdued inflation. They also noted that the growth outlook is clouded by mounting domestic vulnerabilities in the financial, fiscal, and real estate sectors. At the same time, potential spillovers from developments in the euro area and major advanced economies continue to pose external risks.

Directors agreed that China has the capacity to withstand shocks, but considered that a further strengthening of policy buffers over time would be desirable.