IMF: China's Economy Should Grow 10 Pct.
By JOE McDONALD AP Business Writer
© 2006 The Associated Press
BEIJING — China's sizzling economy should grow 10 percent this year and next, propelled by surging exports, but the region could be hurt if its investment boom sours, the International Monetary Fund said Thursday.
In a semiannual report on the world's economic outlook, the IMF also added to calls for Beijing to raise the value of its currency, the yuan, saying that would help to cut its huge trade surpluses and boost households' purchasing power.
China's strong performance should help to drive growth in other Asian economies from South Korea to Indonesia, said the report, released in Singapore, where the IMF will be holding its annual meeting Sept. 19-20.
"There is the possibility of even faster-than-projected growth in China," the report said.
But it warned of potential risks from an investment boom that the government is struggling to contain.
Beijing has raised interest rates twice this year in an attempt to rein in heavy spending on apartments, factories and shopping malls that boosted economic growth to 11.3 percent in the second quarter. Chinese leaders worry that the boom could ignite inflation or leave borrowers and banks with dangerously high debt.
"The current exceptionally rapid investment growth could lead to overcapacity, falling profits and balance sheet problems in the corporate and financial sectors," the IMF said.
It said such problems would affect other emerging Asian economies due to China's growing importance in regional trade.
The report said China's trade surplus should remain strong, standing at the equivalent of 7.2 percent of its total economic output both this year and in 2007 _ double the share in 2004.
Frustrated by such surpluses, Washington and other trading partners are pressing Beijing to raise the yuan's government-controlled exchange rate. They say it is too low and gives Chinese exporters an unfair price advantage, hurting competitors and threatening jobs abroad.
Allowing the yuan to rise would help to cut the surplus and "give the central bank greater control of domestic monetary conditions," the IMF report said.
"Exchange rate appreciation would also bolster housesholds' purchasing power, which, together with reforms to the financial sector, would boost consumption," it read.
The IMF also called for more reform in China's financial industries to strengthen their ability to cope with changes in interest and exchange rates as the country opens further with the world economy.