China's stabilized economy reassures participants at IMF/WB meetings

WASHINGTON - "After learning China's economy stabilized in the first quarter of this year, the IMFC (International Monetary and Financial Committee) members at the meeting felt relieved," Zhu Min, deputy managing director of the International Monetary Fund (IMF) said Monday.

The Chinese economy expanded at a robust 6.7 percent pace in the first quarter, which is valuable in view of the dismal global economy, Zhu told reporters after concluding the IMF/World Bank Spring Meetings.

The IMF raised its forecast for China's growth to 6.5 percent in 2016 and 6.2 percent in 2017, saying that the upgrade reflects China's announced policy stimulus and the trend that a robust growth in the service sector offsets recent weakness in manufacturing activity.

"There's a lot more comfort now in the ability of China to keep demand at a certain level that would foster growth," Mexico's Finance Minister Luis Videgaray said during the spring meetings.

According to Zhu, the Chinese economy is heading toward the brighter side, with many economic indicators improving, confidence starting to build up, and the exchange rate stabilizing.

But he noted that some fundamental problems in the economy should not be underestimated. China is planning to reduce excessive capacity in industries such as coal and steel, to deleverage its highly indebted firms, and to reform the State-owned enterprises (SOEs), while it has to safeguard the soundness of the financial system.

All these problems are intertwined together, and dealing with them has no precedent to follow, said Zhu.

According to Zhu, the participants at the meetings all praised China's efforts to stabilize the economy, and supported China in its efforts to push forward reforms in view of the stabilized economy.

During the meetings, US Treasury Secretary Jacob Lew told reporters that efforts by China to bolster household income will support China's economic rebalancing toward consumption-led growth, and structural measures such as SOE and financial sector reforms and steps to reduce excess capacity will support China's economic transition.

"There was a broad sense that the policies announced are important, and there's a broad hope that those policies will be implemented effectively and quickly," said Lew.

With the economy stabilized, the financial markets in China and around the world also show signs of stabilization, said Zhu.

If investors have confidence in Chinese economy and know Chinese economy well, they would not overact to news from China, said Zhu.

A recent IMF study found that spillovers from Chinese asset price shocks remain limited, while economic news from China does affect global equity returns. In this regard, it is important for the policymakers to communicate the policy changes to the market in an effective way, said Zhu.

At a press conference during the meetings, IMF chief Christine Lagarde said that Chinese authorities have improved their policy communication. "Nobody likes uncertainty and market in particular," said Lagarde.

Zhu also called on investors both in China and abroad to better learn Chinese economy and policies, which could minimize unnecessary market volatilities.