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IMF cuts China growth outlook

May 29, 2013

The International Monetary Fund (IMF) has trimmed its growth forecast for the Chinese economy for the second time this year blaming sluggish global growth. But a reluctance to initiate change will add further risks.

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Image: AP

The International Monetary Fund (IMF) lowered its 2013 growth outlook for China from a previous forecast of 8 percent to around 7.75 percent, the international lender announced on Wednesday.

For 2014, the IMF predicted the Chinese economy to expand by about the same pace, it added.

The revised prediction came essentially from the pace of growth in the global economy and the demand from that growth for Chinese exports, the IMF's first deputy managing director David Lipton told a news conference in Beijing.

Lipton was speaking at the conclusion of regular IMF consultations with the Chinese government which included meetings with Vice Premier Wang Qishan and China Central Bank governor Zhou Xiaochuan.

China's export-driven economy grew 7.8 percent last year, the lowest rate of expansion since 1999. The world's second-largest economy suffered from falling global demand and rising costs in the wake of the eurozone debt crisis and uncertainty over the economy in the United States.

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Describing China's growth as still robust, David Lipton noted, however, that the Asian economic powerhouse was in need of liberalization and reduced government involvement.

"Allowing more competition in sectors currently considered strategic would improve economic growth," he said.

In addition, explosive growth in lending, which had helped the Chinese economy rebound, was now raising concerns, Lipton added. This was because much new credit flowed through less-well supervised parts of the financial system and into doubtful investments, for example in the property sector.

Moreover, high income inequality and environmental problems were further signs that China's current growth model needed to change, the IMF's first deputy managing director said.

China's President Xi Jinping and other new leaders who took power in November, are eager to make the country's economy more productive and re-focus it on domestic demand rather than exports as the key driver of growth.

The government in Beijing has set a growth target for 2013 of 7.5 percent, which is lower than the latest prediction made by the IMF.

uhe/mz (AFP, AP, dpa)