IMF cautions China on credit, asset bubbles

PTI Beijing | Updated on April 13, 2011

Projecting a 9.6 per cent growth for China in 2011, the International Monetary Fund (IMF) has said that the country’s economy faces increasing pressure from credit and asset bubbles.

“There are mounting concerns about the potential for steep corrections in property prices and their implications,” the IMF said in its annual World Economic Outlook report.

The IMF report said that credit and asset price behaviour was disconcertingly hot in China.

Even though the government had taken measures such as increasing banks’ reserve requirements and raising interest rates to fight inflation, credit growth remained high compared with the run-ups to previous credit booms and busts, it said.

Still, China along with India will continue its solid growth, despite concerns over rising oil prices and the fallout from the Japanese earthquake, according to the report.

The world’s third largest country in terms of area, has set annual economic growth target at 8 per cent for 2011 and 7 per cent for the next five years.

China, which grew by 10.3 per cent in 2010, may witness a rise in inflation to five per cent in 2011, as the economic engines shift to a growth model that favours domestic consumption over export-led growth, according to the report.

Inflation has been one of the major concerns for both consumers and the government, which released RMB 4 trillion at home as economy stimulus measures after the global financial crisis.

China has raised the reserve requirement ratio of banks nine times since the beginning of last year to soak up excess liquidity in the market.

The IMF warned on Monday that China’s price pressures, which started in a narrow range of food products, have now widened to other sectors.

Published on April 13, 2011

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