IMF's upgrade signals global confidence in China's economic outlook

WASHINGTON - The International Monetary Fund (IMF) on Tuesday raised its forecast for China's economic growth in the near term and believes that a successful rebalancing of its economy is likely, which signals global confidence in China's economic outlook.

The Chinese economy is expected to expand 6.5 percent in 2016 and 6.2 percent in 2017, both up 0.2 percentage point from the IMF's predictions in January, according to the IMF's flagship report World Economic Outlook (WEO) released on Tuesday.

The upgrade reflects China's announced policy stimulus and the trend that robust growth in the service sector offsets recent weakness in manufacturing activity, said the IMF.

There could be substantial spillover effects from China's transition toward more sustainable growth based on consumption and services, but "ultimately, that process will benefit both China and the world," said the IMF.

Chen Fengying, world economy research fellow with the China Institute of Contemporary International Relations, said the IMF's upgrade shows its optimism about China's economic development.

"In recent months, world markets have changed their views of our economic outlook, for we have clearly set out a blueprint -- the 13th Five-Year Plan, and have shown determination to carry out economic and political reforms," Chen explained.

Christine Lagarde, the managing director of the IMF, said in February at the Global Women's Forum 2016 that China's lower growth is "deliberate" and healthy as the government has decided to transform the country from a place of mass production to quality production and from investment to consumption.

She said the IMF "does not believe that the world's second largest economy will face a hard landing" and that China's decision to transform "from quantity to quality" is the right way forward.

According to the report, China's industrial sector is expected to see further weakening, while the services sector growth should be robust as the Chinese economy continues to rebalance from investment to consumption.

High income growth, a robust labor market, and structural reforms designed to support consumption are assumed to keep the rebalancing process on track over the forecast horizon, said the IMF.

The gradual increase in the global weight of fast-growing countries such as China and India plays a role in boosting global growth, said the international lender.

China's efforts to ensure policy transparency as well as a smooth transition will support global growth, chief economist at the IMF Maurice Obstfeld said at a press conference on Tuesday. He called on China to further reform its state-owned enterprises (SOE), deal with non-performing loans, and strengthen regulatory framework.

Eswar Prasad, a senior fellow at the Brookings Institute, said in an article recently that "China's growth continues to slow, although a hard landing appears to have been averted for now."

He said that growth in retail sales, household incomes, and employment have held up better despite the slowdown in the industrial sector and exports.

As for the global economy, which the IMF again downgraded its forecast from 3.4 percent of growth predicted in January to 3.2 percent, citing unexpected weakness in the United States and Japan, the Chinese economic researcher Chen said, "it is just a risk, not crisis."

"China's economic prospect is so far good, should reforms be implemented as soon as possible and anti-corruption continues. The government has the determination to crack a hard nut," she concluded.