The International Monetary Fund (IMF) kept its forecast for China’s 2018 economic growth unchanged at 6.6 percent yesterday but warned that overly rapid credit growth and trade frictions could pose risks for the world’s second-largest economy.
China’s economy grew 6.8 percent in the first quarter of 2018, slightly faster than expected, buoyed by strong consumer demand and robust property investment.
Earlier in January, the IMF raised its forecast for China’s economic growth this year to 6.6 percent from 6.5 percent. Beijing in March set a full-year growth target of around 6.5 percent.
HSBC Private Bank expects China’s GDP to be 6.7 percent this year, while next year’s forecast is 6.9 percent.
Economists expect growth to slow to 6.5 percent this year from 6.9 percent in 2017, citing rising borrowing costs, tougher limits on industrial pollution and a crackdown on local government spending.
China should further rein in credit growth, said James Daniel, Mission Chief for China and Assistant Director of the Asia & Pacific Department at the IMF. “There hasn’t been any deleveraging in the real economy. Let’s be clear of that. What has happened is the rate of increase of debt has slowed quite significantly,” Daniel said, following a visit by an IMF team to Beijing and Shenzhen this month.
The government is in the third year of a regulatory crackdown on riskier lending practices, which has slowly pushed up borrowing costs and is pinching off alternative, murkier funding sources for companies such as shadow banking. But even as Beijing cracks down on the country’s credit risks, China has only seen a modest uptick in defaults so far. “Now of course there’s a risk that you go from very few defaults to quite a lot. And for a market and for investors that are not used to that, that can be pretty destabilizing,” he said. “We do not see this. We see some uptick, very much contained and appropriate.”
Meanwhile, the central parity rate of the Chinese yuan weakened against the US dollar for a fifth trading day in a row Wednesday.