IMF Official: China on Pace for Healthy Growth in 2013

China

Markus Rodlauer, the deputy director of the International Monetary Fund’s Asia Pacific department, said that China’s economy is on pace to maintain a 7.75 percent growth rate this year, Reuters reports.

Rodlauer pointed to several economic indicators, including figures from the manufacturing and retail sectors, as evidence for his claim, which echoes an updated forecast by the IMF first published in July. The 7.75 percent estimate comes in above the 7.5 percent target touted by Beijing officials as the benchmark for the beginnings of an economic turnaround in the Asian nation.

Many are concerned not so much about growth rates in the immediate future, with data from the first half of this year already supporting analyst projections, but rather with the sustainability of growth in the coming decade. Especially in the face of Beijing’s goal of doubling the size of the Chinese economy between 2010 and 2020, creating growth that will not peter out in the next few years is of paramount importance.

Standard & Poor’s recently published a report claiming that the future sustainable pace of growth for the Chinese economy will be in the 7 percent to 7.5 percent range, which, though enough to meet official goals, is considerably lower than the pace has been in previous years.

What this requires — and what some fear is not being met — is creating growth driven by consumer demand and not by government investment. With China’s transition to a manufacturing-based, industrial powerhouse on track, the main source of potential for future growth must come from other sectors, which so far have lagged behind during the recent economic downturn.

Among the measures that China is taking to move toward sustainable growth is the deregulation of interest rates and the possible allowance of negotiable certificates of deposit by many of China’s top banks, according to Reuters. Both of these moves would allow interest rates to fluctuate closer to real market interest rates, all while maintaining enough control to prevent rates from spiraling out of control. The move also allows China to monitor what happens to interest rates with gradual deregulation and reevaluate its response based on the efficacy of the measures.

In other news, Chinese banks have begun to sell asset-backed securities, Reuters reports, a move that allows them to raise capital while providing risk-controlled investment opportunities in the country. This is a step toward creating more sound balance sheets in China’s banks through restructuring holdings and thus reducing the impact of a potential increase in the proportion of bad debts on the banks.

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