China Should Set Lower 2015 GDP Growth Target Of 6.5-7%, IMF Says

BEIJING — China should set an economic growth target of 6.5-7 percent for 2015, below its goal for 2014, and refrain from stimulus measures unless activity threatens to slow sharply from that level, the International Monetary Fund said on Thursday.

Most of its directors hold that view, though some feel that an even lower growth target is appropriate, the IMF said.

In the conclusion of its annual economic consultation with China under Article IV, the IMF repeated its projection that the economic growth would dip to 7.4 percent this year, and decelerate further to 7.1 percent next year.

The IMF had cut its 2014 and 2015 economic growth forecasts for China last week. It had projected in April that the world's second-largest economy would grow 7.5 percent this year, and 7.3 percent next year.

Beijing is not expected to announce its 2015 target until early next year, though some government economists have suggested a level of around 7 percent to help create more room to pursue structural changes.

"Regarding the growth target for 2015, while most directors concurred that a range of 6.5-7 percent would be consistent with the goal of transitioning to a safer and more sustainable growth path, a few other directors considered a lower target more appropriate," the IMF said.

China fixed its annual economic growth target for this year at around 7.5 percent, suggesting for the first time in years that there is room for growth to come in slightly under the desired level.

But after a weak start to the year, the government announced a flurry of stimulus measures to offset the drag from weak exports and a cooling property market.

The economy grew 7.7 percent in 2013, above the target of 7.5 percent and again underpinned by government stimulus early in the year.

Some analysts have criticised the 2014 target as one that is still too high to give China enough room to overhaul its economy to produce slower but better-quality growth.

To that end, the IMF repeated an earlier recommendation that China should not deploy any economic stimulus unless GDP growth is in danger of falling "significantly" below the target level.

This is because risks in China in the form of off-budget spending and quick growth in credit and investment have "risen to the point that containing them is a priority", it said.

Any stimulus that is dispensed should be carried out through fiscal policy and should be accounted for in government budgets, the IMF added.

"Consumption and the labour market are holding up well, and the global recovery is expected to support activity going forward," the fund said.

In line with the modest cooldown, the IMF estimated that annual inflation in China may ease to 2 percent this year, a good way under the government's 3.5 percent target.

Price pressures are expected to pick up slightly next year to boost inflation to 2.5 percent.

The fund also repeated its assessment that the yuan is "moderately undervalued", and that it supports China's attempt to move towards a more flexible exchange rate that is not subjected to "sustained, large and asymmetric intervention".

The central bank is widely suspected of engineering a sharp drop in the currency earlier this year to punish speculators, though most economists expect it will eventually allow the yuan to resume a trend of gradual appreciation.

At the same time, the IMF noted that previous appreciation in the yuan's real effective exchange rate has helped to narrow China's external imbalances -- its current account surplus dropped to 1.9 percent of its GDP last year.

On China's bid to take on its most ambitious reform plans in three decades, the fund again urged authorities to free up bank deposit interest rates, remove implicit guarantees in the financial and corporate sectors, and open more industries up for competition.

It said China also needed to boost consumption, reorder local government finances, and improve pension and health benefits.