A mother rests with her child in the shade next to the bucket of an excavator at a machinery maintenance station in Shanghai. The IMF has advised China's government to pursue its goal of refocusing the economy by strengthening household consumption without implementing a stimulus plan. Photo: Reuters

Beijing - China should refrain from rolling out more stimulus to boost economic growth and continue to implement changes to curb dangers from shadow banking and local government debt, the International Monetary Fund (IMF) said yesterday.

First deputy managing director David Lipton said: “We are not counselling stimulus at this point, we don’t think that there are any sufficient signs to warrant that.”

China’s government is trying to sustain growth without implementing a stimulus plan on the scale of the $586 billion (R6.2 trillion) policy boost begun in 2008 that caused a record build-up of debt and inflated asset bubbles.

The State Council, which said last week that there was “relatively large” downward pressure on the economy, has resisted broader monetary policy easing to curb debt that JPMorgan Chase estimates surged to more than twice gross domestic product (GDP) last year.

“We consider that vulnerabilities have risen to the point where containing them should be a priority and therefore further stimulus should only be deployed if growth slows significantly below this year’s growth target,” Lipton said at a briefing after two weeks of talks with Chinese officials for the Washington-based lender’s annual assessment of the nation’s economy.

Premier Li Keqiang set a goal in March for an increase of about 7.5 percent in GDP this year, the same as last year.

Lowering the target to about 7 percent next year “would be consistent with the goal of transitioning towards a sustainable growth pattern”, Lipton said.

China’s economy expanded 7.7 percent last year and in 2012, the weakest pace since 1999 in the aftermath of the Asian financial crisis and down from an average 10.6 percent in the previous decade.

Growth may ease to 7.3 percent this year, according to the median estimate of 51 analysts in a survey last month.

Lipton said the government needed to find alternative ways to support the economy if there was a deeper slowdown, adding that it should pursue its goal of re-orienting the economy away from credit, investment and exports towards strengthening household income and consumption.

China had become too dependent on credit and investment, including in property, since the global financial crisis, the IMF said.

“Continuing reliance on credit-fuelled growth means that risks are still rising, and although the government still has sufficient buffers to prevent a disorderly adjustment and sharp growth slowdown in the near term, continued efforts to reduce vulnerabilities are a high priority,” the IMF statement read.

China’s total non-financial debt rose to 210 percent of GDP last year from 197 percent in 2012, Zhu Haibin, JPMorgan’s Hong Kong-based chief China economist said in a report this week, estimating that corporate debt rose to 130 percent of GDP last year from 92 percent in 2008.

While China has taken steps to rein in excessive growth in shadow banking and strengthen control of local government borrowing, the authorities agreed during talks with the IMF that “much remains to be done”, according to the statement.

Priorities for the government should include fiscal reforms and strengthening local government finances, liberalisation of deposit rates and the introduction of deposit insurance to remove distortions in the pricing of risk and borrowing costs, the IMF said. - Bloomberg