As China is moving its economy to a more inclusive, environment-friendly, and sustainable growth path, the sustainability in the end will mean higher incomes in the country, with even larger gains in consumption and living standards -- a result good for both China and the rest of the world, IMF Managing Director Christine Lagarde has said.
Before her departure to Beijing, Lagarde told Xinhua in an exclusive interview that "my message during my visit is that I am convinced that our ongoing partnership will only grow stronger as we work together to foster prosperity and stability in China, the region, and the global economy."
SUSTAINABLE GROWTH PATH FOR CHINA
As a frequent visitor to China, Lagarde said she loved the dynamism and vibrancy of its economy and society, with a constant impression of the optimism and pragmatism of its people, as well as strong collective commitment to a more open, modern and prosperous China.
China's economy faces rising vulnerabilities in a number of areas, including real estate, local government financing, and the financial system, she said.
"In the near term, the risks are manageable, thanks to a number of buffers, including high domestic savings, a strong external position, and a still-robust government balance sheet. However, timely and steadfast implementation of the reform agenda is needed both to prevent a further build-up of risks and put the economy on a sustainable growth path," Lagarde said.
Creating significant adjustment in many sectors of the economy, China's comprehensive package of reforms may result in somewhat slower growth in the near term but the costs will be more than offset by the benefits of much higher income over the medium term. From a global perspective, the benefits from stronger demand in China will result in higher global output over time, she said.
In regard to China's slower growth, the IMF chief said in an optimistic tone that the slower growth is still "twice the rate of global growth!" China has contributed one-third of global economic growth in the past seven years and is expected to remain an important engine for the global economy, she said.
CONFIDENCE IN EMERGING ECONOMIES
Growth in emerging and developing economies (EMDEs) has slowed in recent years, which triggers doubts about their future sustainability. However, the IMF chief expressed her confidence in the EMDEs, saying they will continue to outpace that of advanced economies, though at a slower rate.
Lagarde said the share of emerging economies in global GDP will continue to increase, and much of the increase will be driven by the BRICS countries, in particular by China and India. According to the IMF, EMDEs share in global GDP adjusted by purchasing power is projected to rise from 57 percent in 2014 to about 60 percent in 2019.
"Given these trends, we have good reason to feel optimistic about the prospects of the BRICS Development Bank and believe the new bank can be an important source for investment financing," said the IMF chief, adding the bank could play an instrumental role in addressing existing infrastructure gaps -- a key constraint to growth in many of the BRICS economies.
In this regard, she considered as "welcoming developments" the newly established multilateral banks that make decisions based on economic principles and complement existing development banks.
WE NEED TO ACT NOW
The IMF chief has previously depicted the global economy as " new mediocre." In the interview, she expressed the urgent need to take actions to prevent the global economic supertanker from remaining mired in the shallow waters of sub-par growth and meager job creation.
She called on countries to implement the ambitious commitments made at the Group of 20 (G20)'s Brisbane Summit in November, invest in structural reforms decisively, and ensure that growth is inclusive.
As a strong advocator for infrastructure investment which is also a major part of the G20 growth agenda, the IMF stressed close collaboration and coordination among existing efforts and new initiatives will help bridge infrastructure gaps and unlock the economic potential of countries in the region.
IMF research has shown that increased public infrastructure investment raises output in the short term by boosting demand; and in the long term by raising the economy's productive capacity.
In regard to recent strong performance of the U.S. dollar, the IMF chief warned "we should pay attention to those economies whose corporations or sovereigns have borrowed extensively in dollars over past few years and may have unhedged exposures."
IMF REFORMS TO MOVE FORWARD
As U.S. Congress failed to ratify the IMF 2010 reforms again and again, Lagarde said the IMF is now working actively on interim measures in order to achieve the key objectives of the 2010 reforms. The IMF will explore interim steps in more detail with its membership at its Spring ministerial meetings in April.
To reflect the growing and underrepresented influence of the emerging economies, the IMF 2010 reforms call for a 6 percent shift in quota share to emerging economies. It will lift China to the third largest shareholder. Shares for Russia, India and Brazil will also see hefty rise.
Lagarde said ratification of the 2010 Reforms remains the highest priority for the IMF and is critical to the IMF's credibility, legitimacy and effectiveness, and to ensure it has sufficient permanent resources to meet members' needs.
As for the possible inclusion of Renminbi (RMB) in Special Drawing Rights (SDR) basket, Lagarde said a regular review of the currencies in the basket is scheduled later this year. The selection of currencies for the SDR basket is based on two main criteria: the size of a country's exports and whether its currency is freely usable.
At the time of the last SDR review in 2010, the RMB met the export criterion, but was assessed to not meet the freely usable criterion. Since then there have been a number of developments regarding the RMB's international use, and the upcoming review will take stock of these developments, Lagarde said.