25 Jul 2012

IMF / CHINA

China’s growth rate is set to moderate to around 8 percent this year due to measures by authorities to cool the economy, and the global slowdown, say IMF economists in their latest assessment of the world’s second-largest economy. IMF

Posted at: July 25, 2012 10:41 am

Duration: 02:20

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STORY: IMF / CHINA
TRT: 2.20
SOURCE: IMF
RESTRICTIONS: NONE
LANGUAGE: ENGLISH / NATS

DATELINE: RECENT, 2012, WASHINGTON DC / BEIJING, CHINA

SHOTLIST:

RECENT, BEIJING, CHINA

1. Wide shot, city traffic
 
RECENT, 2012, WASHINGTON DC

2. SOUNDBITE (English) Markus Rodlauer, Deputy Director, Asia & Pacific Dept., IMF: "China's economy has been slowing, but now policies have shifted toward supporting growth, and this is very important because China has been affected by the crisis in Europe which is affecting everybody.  It's affecting China, too.  So overall we are very confident that China is experiencing what we call a "soft landing" which means growth this year of around 8 percent.  This is less than it was in the past, but still it compares very favorably to what's happening around us in the global and what other countries are able to achieve.  Over the medium term, China has tremendous potential, but at the same time, to tap this potential, policy will have to change somewhat.  This economy has to move from where it has been so successful in the past which was to rely mainly on exports and on investment to now increasingly produce for the domestic economy."

RECENT, BEIJING, CHINA

3. Various shots, city scene

RECENT, 2012, WASHINGTON DC

4.S OUNDBITE (English) Markus Rodlauer, Deputy Director, Asia & Pacific Dept., IMF:  
"It is important that this sector cools down a bit because there was some overheating and unless you prevent this from going on too long, you really run the risk of a very severe collapse later on and we don't want that.  That being said, we now are starting to see some recovery, some bottoming out of this sector especially in areas which are very important to the well-being of the people.  At the same time more fundamentally, we now have seen three property cycles over the last 10 years and there is a need to reduce this boom-and-bust cycle in the public sector and therefore reforms in the financial sector are very important so that people can put their savings and investments not just into the housing markets, but have other outlets for savings."
RECENT, BEIJING, CHINA

RECENT, BEIJING, CHINA

5. Wide shot, street scene

RECENT, 2012, WASHINGTON DC

6. SOUNDBITE: (English) Markus Rodlauer, Deputy Director, Asia & Pacific Dept., IMF:  "The international buying power of the renminbi has gone up by about 7 percent over the past 2 years and actually by almost 30 percent since 2005 when the renminbi was first untied from the peg to the U.S. dollar.  You may not feel that very much if you live in China and consume mainly domestically produced goods, but you certainly can buy more imported goods from China or when you travel abroad and you're better off today."

RECENT, BEIJING, CHINA

7. Wide shot, shopping street

RECENT, 2012, WASHINGTON DC

8. SOUNDBITE (English) Markus Rodlauer, Deputy Director, Asia & Pacific Dept., IMF:  "Undervaluation of RMB have been significantly reduced, but there is still some way to go. The IMF is currently assesses the currency moderately undervalued. We do expect and hope that over the next few years, it will continue to appreciate gradually."

RECENT, BEIJING, CHINA

9. Wide shot, traffic

STORYLINE:

China's growth rate is set to moderate to around 8 percent this year due to measures by authorities to cool the economy, and the global slowdown, say IMF economists in their latest assessment of the world's second-largest economy.

In an interview, the head of the IMF China team, Markus Rodlauer, says with the right policies, and global collaboration, he is confident that China can meet its immense challenges.

Q: The IMF recently downgraded its outlook for the global economy. What do you see as the implications of this for the Chinese economy?

Rodlauer: China's economy has now been slowing for six consecutive quarters. This started early last year when the government deliberately put in place policies to slow the economy, which had been growing very fast. Now, on top of that, has come the global slowdown—mainly related to the euro crisis—that has slowed down the economy more than expected and somewhat more than the authorities had themselves probably intended. So, earlier this year, they switched gears and started to moderately support the economy to ensure a 'soft landing'.

So, we are seeing growth in China slowing down, as I have said, but we don't see it slowing down too much. GDP growth in the second quarter came in at 7.6 percent, which was slightly better than expected. On current trends, we expect growth of around 8 percent this year which, of course, is still formidable compared to other countries in the world.

Q: Is 8% too high? Too low?

Rodlauer: We believe that growth at around 7-8 percent a year is sustainable for China and is very doable. It is also what the government set itself as a goal in its own Five-Year Plan, which was put in place last year. That being said, in order to achieve that pace of growth over the medium term for many more years, China will have to change its growth model. Over the past few years, growth in China has relied very much on high and rising rates of investment. So, investment has been very strong, capacity has been built, infrastructure has been added, but it cannot continue at this rapid pace forever. Instead, over the next few years, there needs to be a smooth handover from investment to domestic consumption as the main source of growth in China.

Q: What's needed to rebalance the economy to domestic consumption?

Rodlauer: Savings in China are extremely high compared to international levels. Generally, [in most developing and developed countries] one tends to spend about 70 to 80 percent of income and then you save 20-30 percent. You either put it aside for a rainy day or invest into future productive capacity. China, on the other hand, saves over 50 percent of its income, which means there is room to consume more.

So, what would one consume? First of all, we see that, in particular, low-income earners in China still have a way to go before they can easily afford ordinary, consumer goods—such as durables like washing machines, or electronics, or services like travel or insurance. They save a lot partly because they feel that they are not so well provided for in their old age since the pension system is not very strong, the health system may not provide for the emergencies they might face, so that is why a very high proportion of their income is saved, and then either invested or put abroad into savings.

Also, corporate savings in China are very high, and there is room to distribute some of these savings either to the budget (through higher dividends of state-owned enterprises) and salaries. So that too has to change. Savings should come down, and people need to spend more on goods for everyday life: consumer goods, furnishing their homes, but also maybe on better health care and other services like travel and insurance. So it's domestic consumption that really will need to provide more of an engine of demand in China going forward.

Q: You made reference to housing. That was something that was a great worry a few quarters ago because of fears that there was a housing bubble in China. What's your assessment now?

Rodlauer: Here, in particular, the government has put on the brakes quite strongly. They saw that housing prices were rising very fast, construction of new housing was almost going through the roof. And that has consequences for the financial sector—with fears of a bubble—and the instabilities this creates.

But, equally important, in China they saw that this had a profound distributional impact, that many people—because of the very rapid rise of housing prices—were starting to be priced out of the market. That is a big concern for the government. So they set themselves the goal of slowing down this boom and slowing down the rising real estate and housing prices—in fact, engineering some decline in prices. And they seem to have been successful here as we have seen a slowdown of the boom in the housing market.

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