IMF maintains China’s 2018 GDP growth forecast at 6.6%

China’s economy grew 6.8 percent in the first quarter of 2018, slightly faster than expected, buoyed by strong consumer demand and surprisingly robust property investment. (Reuters)
Updated 30 May 2018

IMF maintains China’s 2018 GDP growth forecast at 6.6%

  • China’s economy grew 6.8 percent in the first quarter of 2018, slightly faster than expected, buoyed by strong consumer demand and surprisingly robust property investment
  • But even as Beijing cracks down on the country’s credit risks, China has only seen a modest uptick in defaults so far

BEIJING: The International Monetary Fund kept its forecast for China’s 2018 economic growth unchanged at 6.6 percent on Wednesday, but warned that overly rapid credit growth and trade frictions could pose risks for the world’s second-largest economy.
China’s economy grew 6.8 percent in the first quarter of 2018, slightly faster than expected, buoyed by strong consumer demand and surprisingly robust property investment.
Earlier in January, the IMF raised its forecast for China’s economic growth this year to 6.6 percent from 6.5 percent. Beijing in March set a full-year growth target of around 6.5 percent.
Economists expect growth to slow to 6.5 percent this year from 6.9 percent in 2017, citing rising borrowing costs, tougher limits on industrial pollution and a crackdown on local government spending.
China should further rein in credit growth, said James Daniel, Mission Chief for China and Assistant Director of the Asia & Pacific Department at the IMF.
“There hasn’t been any deleveraging in the real economy. Let’s be clear of that. What has happened is the rate of increase of debt has slowed quite significantly,” Daniel told reporters in Beijing, following a visit by an IMF team to Beijing and Shenzhen this month.
The government is in the third year of a regulatory crackdown on riskier lending practices, which has slowly pushed up borrowing costs and is pinching off alternative, murkier funding sources for companies such as shadow banking.
But even as Beijing cracks down on the country’s credit risks, China has only seen a modest uptick in defaults so far.
“Now of course there’s a risk that you go from very few defaults to quite a lot. And for a market and for investors that are not used to that, that can be pretty destabilizing,” he said.
“We do not see this. We see some uptick, very much contained and appropriate.”
But it is only “natural” and “healthy” were there to be more defaults in China, because they are the best way to incentivize the market and allocate China’s savings more efficiently, he said.
From the IMF’s meetings with the government in the past weeks, regulators are very well aware of the risks and they have tools to address those if they materialize, Daniel said.
Trade frictions also pose a risk for China’s economy, Alfred Schipke, senior resident representative at the IMF, told reporters, when asked about the impact of the ongoing tensions with the US.
The US said on Tuesday that it still held the threat of imposing tariffs on $50 billion of imports from China and would use it unless Beijing addressed the issue of theft of American intellectual property.


Automakers expect Trump will delay decision on imposing EU, Japan tariffs

Updated 20 sec ago

Automakers expect Trump will delay decision on imposing EU, Japan tariffs

  • Foreign companies are eager to highlight US investments to try to dissuade US president

Major automakers think US President Donald Trump will again this week push back a self-imposed deadline on whether to put up to 25 percent tariffs on national security grounds on imported cars and parts from the EU and Japan amid an ongoing trade war with China, five auto officials told Reuters.

The anticipated delay — expected to be announced later this week — comes as foreign automakers are eager to highlight US investments to try to dissuade Trump from using tariffs that they argue could cost US jobs.

US Commerce Secretary Wilbur Ross said earlier this month tariffs may not be necessary. EU officials expect Trump to announce a six-month delay when he faces a self-imposed deadline this week. Trump in May delayed a decision on tariffs by up to 180 days as he ordered US Trade Representative Robert Lighthizer to pursue negotiations.

Lighthizer’s office recently asked many foreign automakers to provide a tally of investments they have made in the US, several auto industry officials told Reuters.

The White House and Lighthizer’s office declined to comment.

On Wednesday, Tennessee Gov. Bill Lee, a Republican ally of Trump’s, plans to attend a groundbreaking at Volkswagen AG’s Chattanooga assembly plant where they will mark the beginning of an $800 million expansion to build electric vehicles and add 1,000 jobs. The high-profile event will also include remarks from Germany’s ambassador to the US.

VW announced the plan to begin producing EVs by 2022 in Tennessee in January.

Daimler AG said in late 2017 it planned to invest $1 billion to expand its manufacturing footprint around Tuscaloosa, Alabama, creating more than 600 jobs. Tariffs on Japan seem even less likely than the EU, experts say.

Japanese automakers and suppliers have announced billions of dollars in investments, most notably a $1.6 billion joint venture plant in Alabama by Toyota Motor Corp and Mazda Motor Corp.

Trump and Japanese Prime Minister Shinzo Abe signed a limited trade deal in September cutting tariffs on US farm goods, Japanese machine tools and other products.

Although the agreement does not cover trade in autos, Abe said in September he had received reassurance from Trump that the US would not impose auto tariffs on national security grounds. Lighthizer said the two countries would tackle cars in negotiations expected to start next April.

Stefan Mair, member of the executive board of the BDI German industry association, said a deal to permanently remove the threat of tariffs was needed. “The investments that are not being made are costing us the growth of tomorrow, even in sectors that are seemingly not affected,” he said.

Germany’s merchandise trade surplus with the US — $69 billion in 2018 — remains a sore point with the Trump administration as does Japan’s $67.6 billion
US trade surplus last year — with two-thirds of that in the auto sector.