-- IMF sees China heading for soft landing barring major external shocks
-- IMF says China is ready to apply more stimulus measures if needed
-- IMF and China continue to disagree on yuan valuation
-- IMF says China external surplus could rebound if yuan doesn't
continue to appreciate
(Combines two earlier stories, adds content from report and background
throughout.)
By Aaron Back and Jamila Trindle
BEIJING--China's economy is headed toward a "soft landing," but there
are still significant downside risks, the International Monetary Fund
said in a report Wednesday.
Beijing is also ready to deploy additional stimulus measures,
especially if the global economic situation worsens, Markus Rodlauer,
deputy director of the IMF's Asia Pacific Department, told reporters
on a conference call following the release of the report.
"The authorities have also told us that, in light of the large
uncertainties in the global economy and the risk of intensifying
strains and crisis in Europe, they are prepared to do more, and
significantly more, if needed in the face of a large external shock,"
he said.
So far this year, China has cut interest rates twice and cut the level
of required reserves three times. The government has also accelerated
approval of investment projects such as infrastructure construction,
and rolled out incentives for the purchase of energy-efficient
appliances.
Mr. Rodlauer characterized these moves as "calibrated so far mainly to
remove the previous restrictive bias and not to engage in a broad new
stimulus."
"The authorities have taken their foot off the brakes, but they have
not yet stepped on the accelerator in a major way," he said.
In its report, the IMF maintained its current forecasts for China's
gross domestic product to grow 8% this year and 8.5% next year.
The fund also predicted that China's current-account surplus, the
broadest measure of a nation's trade, would be 2.3% of GDP in 2012 and
2.5% of GDP in 2013.
That is down from the massive surplus of over 10% of GDP in 2007, and
the IMF applauded China's progress in rebalancing away from dependence
on external demand.
But it warned that China has been less successful at rebalancing its
internal economy away from investment and toward consumption.
Current high levels of investment may not be sustainable amid weak
external demand and excess capacity, it said.
Last month, the IMF shifted its stance on China's currency, describing
it as "moderately undervalued" against a broad basket of currencies,
instead of "substantially undervalued." China's declining external
surplus and years of accumulated appreciation of the yuan factored
into the decision.
On the call with journalists, Mr. Rodlauer declined to give an
explicit estimate of the degree of undervaluation in the currency.
He also acknowledged that Chinese authorities disagree with the IMF's
stance on the currency, saying they feel it is near equilibrium.
Underpinning the IMF's view is the possibility of a rebound in China's
external imbalances.
"We are confident in our judgment that at current exchange rate and
currency policies...it will be very likely that the current account
surplus will go back up again."
To prevent such a scenario, the IMF believes that "continued gradual
appreciation" of the currency will be needed in the coming years, he
said.
The IMF said inflation pressure had eased and it expected inflation in
China to fall to 3% to 3.5% in 2012 and to 2.5% to 3% in 2013,
"barring further shocks to agricultural supply."
"Price pressures have eased across all major components of the
[consumer price index] basket, led by declining food inflation," the
IMF said.
The IMF also commented on China's real-estate market, saying that the
Chinese government should further reform financial markets to give
consumers more investment options.
"Eliminating the potential for property bubbles requires reforms to
channel household savings away from housing and toward other financial
assets," the IMF said.
The IMF also said that it approved of steps that the Chinese
government has taken toward market-determined interest rates and
"encouraged further deployment of market-based policy instruments."
Write to Aaron Back at aaron.back@dowjones.com and Jamila Trindle at
jamila.trindle@dowjones.com
Subscribe to WSJ: http://online.wsj.com?mod=djnwires
(END) Dow Jones Newswires
July 24, 2012 23:31 ET (03:31 GMT)
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