(MENAFN- Emirates News Agency (WAM))
WASHINGTON, 21st August, 2017 (WAM) -- China's growth between 2017 and 2021 is now expected to average 6.4 percent against 6.0 percent in 2016, according to an International Monetary Fund report on the economic outlook of the world's second largest economy.
"China continues to enjoy strong growth projected at 6.7 percent for 2017 and the country has potential to sustain strong growth over the medium term."
However, to grow strongly, but also sustainably, China needs to boost consumption. "At 46 percent of GDP, China's national savings are 26 percentage points higher than the global average, largely due to the household sector, with consumption correspondingly low. This reduces the current welfare of Chinese citizens, fosters high levels of investment which are unlikely to be absorbed efficiently, and, were investment to fall, would lead to even larger current account surpluses, worsening global imbalances," said the report.
In order to sustain its economic growth , China needs to speed up reforms to make growth less reliant on debt, added the report.
According to the IMF's report, total non-financial sector debt which includes household, corporate and government debt is expected to continue to rise strongly, reaching almost 300 percent of GDP by 2022, up from 242 percent in 2016. This raises concerns for a possible sharp decline in growth in the medium term.
Given strong growth momentum, now is the time to intensify deleveraging efforts. "The Chinese government has started to take important initial steps to facilitate private sector deleveraging credit growth is slowing and the large credit gap" is narrowing. These efforts should intensify, with the overarching priority being to focus more on the quality and sustainability of growth, and less on quantitative targets."
Social spending in China is on the rise, but more can be done. "Increasing government spending on health and pensions would increase government consumption, but also private consumption by reducing households' need to save. Increasing the progressivity of the tax system could finance higher social spending and reduce income inequality, which is among the highest in the world," the report stated.
China also needs to increase productivity. "This can be done by making better use of resources that are currently going to loss-making companies, overcapacity industries, and state-owned Enterprises."
The IMF estimates that such efforts could increase the contribution of productivity to growth by about 1 percentage point over the long term.
WAM/Hatem Mohamed
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