China moving towards `new normal`, transition challenging: IMF

Washington: China is moving towards a "new normal" with slower and more sustainable growth, the IMF said as it underlined that the "transition" of the world's second-largest economy is challenging but necessary.

"China is moving to a new normal, with slower yet safer and more sustainable growth," the IMF said in its latest Staff Sustainability Assessments for G-20 Mutual Assessment Process.

"The transition is challenging but necessary," it said.

The IMF said the biggest risk in China is inadequate progress in advancing reforms and containing vulnerabilities.

Chinese authorities have made progress in reining in vulnerabilities built-up since the global financial crisis and embarked on a comprehensive reform programme, the report said.

It said the challenge is to simultaneously make further progress on: unwinding vulnerabilities while preventing growth from slowing too sharply; and advancing structural reforms toward a new growth model.

The latest sign of a slowdown in China came on October 23 when Beijing cut two benchmark interest rates to spur growth.

It was the sixth time since November that China's central bank has lowered rates and came after a report revealed that its economy grew at 6.9 per cent - the slowest pace in six years.

"Regarding imbalances, considerable progress has been made on external rebalancing with a sharp reduction of the current account surplus from the 2007 peak; while some progress has also been made on domestic rebalancing," the report said.

Reform priorities include moving to a more market-based financial system; improving the management of government finances; levelling the playing field between SOE and the private sector; and having an effectively floating exchange rate regime within 2?3 years, it said.

"The faster the progress, the sooner the economy will move to a more balanced?both externally and domestically?and sustainable growth path," the IMF reported.

Moving to slower but safer growth in the near term, and securing more inclusive, environment-friendly, and sustainable growth in the long-run would involve reversing these trends.

"Managing this slowdown is a key challenge: going too slow will lead to a continued rise in vulnerabilities, while going too fast risks a disorderly adjustment. Over the medium term, the key to managing this tradeoff is the successful implementation of structural reforms to unleash new sources of growth," it said.