China should be willing to loosen trade and investment restrictions if it seeks to play a leading role in globalization.
China should be willing to loosen trade and investment restrictions if it seeks to play a leading role in globalization.

Global Economy Spiraling, But China Must Fix Shortcomings

The global economy is in a late stage of the long and gradual recovery from the global financial crisis

Global Economy Spiraling, But China Must Fix Shortcomings

The world economy is gaining strength but structural issues such as weak wage growth and rapid asset appreciation need to be addressed, an IMF official said on Monday.
“The bottom line is that the cyclical recovery in the global economy is going from strength to strength,” IMF first deputy managing direct David Lipton said in a speech to the Asian Financial Forum in Hong Kong, news outlets reported.
He warned that policy makers in China, the world’s second biggest economy, and elsewhere would need to rein in credit expansion to minimize risks of a sharp slowdown.
In October, the IMF boosted its forecasts for global growth for 2017 but said that many countries were plagued by lackluster productivity as evidenced by weak inflation.
The IMF said it expected global GDP to advance by 3.6% in 2017 and 3.7% in 2018, a 0.1 percentage point increase for both years from previous forecasts.
While generally upbeat, the IMF warned however in its global economic outlook that years of cheap financing had stretched asset valuations, which means that some markets should be watched closely by economic policy makers.
Lipton sounded optimism about the current state of the global economy, in the context of next week’s publication of fresh IMF economic forecasts.
“The signs point to faster growth across all regions,” he said. “We must also recognize that the global economy is in a late stage of the long and gradual recovery from the global financial crisis. With economic slack in advanced economies diminishing, it is not clear how long the good news will continue.”

 Letting Reason Prevail  
China should be willing to loosen trade and investment restrictions if it seeks to play a leading role in globalization, Lipton said, according to Bloomberg report.
Lipton acknowledged that China’s leadership has been a “voice of reason” in terms of preserving the current system of rules-based international trade, but the nation also had more to do.
“We believe that effective and credible leadership in support of globalization also requires a willingness to recognize and address one’s own shortcomings,” Lipton said. That means “protecting intellectual property rights and reducing the distortions of industrial policy, overcapacity and policies that favor state enterprises.”
Lipton spoke just days after a US trade tribunal said in a preliminary ruling that imports of aluminum sheet from China are hurting American industry, setting the stage for the Trump administration to impose tariffs. Economists worry that heightened US-China trade tension remains one of the biggest threats facing global growth this year.
China should also accelerate its efforts to bring its financial sector to a more stable footing, according to Lipton. “China has a window of opportunity to accelerate economic reforms that can secure sustainable and inclusive growth,” he said. “China has made considerable progress in this area, as our recent assessment of its financial sector shows. But it is essential to sustain this effort to ensure that financial instability does not undermine the country’s extraordinary economic and social progress.”
China is on track to build up a debt-to-gross domestic product ratio of more than 320% by 2022, a level that would rival Japan’s, Bloomberg economists estimate.
Lipton said during a separate interview Monday on Bloomberg Television that policy makers are now “pointed in the right direction” on debt.
“The Chinese have to bring credit growth down to grow less rapidly than the economy, or else credit will continue to be too big relative to the economy,” he said.

 Addressing Vulnerabilities
Lipton’s warning on the world economy echoes a view increasingly shared by investors and policy makers that a growing list of worries from geopolitical tension to frothy markets could upend the world economy’s best performance in years.
The IMF No.2 highlighted a risk of unexpected monetary policy developments or exchange rate fluctuations that could swing market sentiment and trigger a sudden reversal of capital flows. He also pointed to weak wage and productivity growth as among the concerns.
“Our meaning is clear: now is the time to address vulnerabilities and structural issues that could impede sustained growth, and to take steps to enable stronger growth once cyclical recovery is no longer driving the economy,” Lipton said.

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