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IMF hails China's policy response in financial crisis

WASHINGTON, July 27 (Xinhua) -- Chinese authorities have taken "quick, determined and effective" measures to help its economy regain momentum against the worst financial turmoil in decades, said the International Monetary Fund (IMF) on Tuesday.

"Executive Directors commended China's proactive and decisive policy response to the global economic crisis," the IMF Executive Board said in its annual report on China's economic policy assessments and recommendations after consultation with Chinese authorities.

"The authorities' quick, determined, and effective policy response has helped mitigate the impact on the economy and ensured that China has led the global recovery."


The report said China's fiscal stimulus package adopted in the crisis has increased expenditure on public infrastructure, pensions, health care as well as education, and lowered taxes and incentives to boost purchases of consumer durables.

On monetary policy, it noted China's central bank lowered interest rates and reserve requirements, and removed limits on credit growth, which led to an extraordinary surge in bank lending.

In late 2008, China unveiled a four-trillion-yuan (590 billion U.S. dollars) stimulus package and shifted its fiscal policy from a "prudent" to a "proactive" stance and eased monetary policy from "tight" to "moderately loose," to counter the global financial crisis.

"These policies were instrumental in arresting the downward momentum to both activity and confidence," said the report, noting that China's economic growth began to pick up in the second quarter of 2009 and reached an average for the year of 9.1 percent. It expected China's economy to remain robust against the backdrop of a still-fragile global economic recovery.

China, the world's third largest economy, expanded at a 10.3-percent year-on-year rate in the second quarter this year, slower than the previous two quarters. But the cooling down is considered good for economic restructuring and preventing overheating.


China's solid economic recovery also benefited other countries by driving up the sluggish global demand.

The report said China's recovery has "significant positive spillovers" to the region and the world economy as a whole, both through increased demand for commodities and through higher imports of capital goods.

China's recovery has driven up its demand for big-item commodities such as crude oil, metals and agricultural products, which contributed to a surge in global commodity prices. On the other hand, economic recovery boosted the country's demand for imported goods, resulting in a quick decline in its current account surpluses.

China's trade surplus fell by 42.5 percent in the first six months this year from a year earlier to 55.3 billion U.S. dollars, according to the General Administration of Customs (GAC).

Economists projected that China's trade surplus this year would decline by around 20 billion dollars from the 2009 level.


The IMF believed that the main policy challenge Chinese authorities face now is "to calibrate the pace and sequencing of exit from the fiscal stimulus and credit expansion, while making further progress in reorienting the economy toward private consumption."

"With the recovery becoming increasingly well established, the government has begun to unwind some of its crisis response measures," said the report.

Credit growth has been slowed, reserve requirements modestly increased, and prudential requirements related to property lending were tightened, it added.

The report considered it appropriate that China maintains fiscal support for a steady resumption of private demand, while suggested a gradual phase out of the fiscal stimulus in 2011, provided the current trajectory for the economy is maintained.

China has listed the transformation of economic growth pattern high on its economic agenda. It vowed to create a more consumption-oriented economy, rather than one fueled by large scale investment and exports.

The IMF also appreciated the recent decision by China's central bank to return to the managed floating exchange rate regime, and commended the government for "its pragmatic deployment of a range of countervailing prudential measures to contain property price inflation."

Stimulus policies, while helping spur the economy, also triggered problems, including a lending boom and a surge in property prices.

In April, the government imposed a raft of measures to rein in soaring house prices and curb property market speculation, including tightening scrutiny of developers' financing, the limiting of loans for third-home purchases and higher down-payments for second-home buying.

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