China’s growth robust, but...

tokyo — The near-term outlook for China’s economy is robust but external threats have risen and overall risks are tilted to the downside, according to the International Monetary Fund.

What happens with the world’s second-largest economy from now will depend on how China’s government acts, the IMF said in a report after regular consultations with the Chinese government. Market-based reforms could lead to sustained, stable growth, but “a reversion to creditdriven stimulus would further increase vulnerabilities that could eventually lead to an abrupt adjustment,” the Fund said.

The Washington-based IMF’s warning comes as Beijing signals that it is prepared to soften a campaign to rein in debt in order to support the economy at a time when a trade conflict with the US is intensifying. Second-quarter output data released this month showed that Asia’s biggest economy is slowing, though it’s still on track to hit an official growth target of 6.5 per cent for 2018.

The government needs to resolve the policy tensions between the stated aims of “stabilising leverage, allowing market forces a decisive role, and greater innovation and opening-up” and the “still-unsustainable debt growth, the pervasive role of the state in the economy, and the relatively restrictive trade and investment regime in some areas”.

The Fund argued that there is some space for fiscal policy to support the economy as deleveraging takes place.