China should boost domestic demand, shift toward services: IMF chief

IMF managing director Kristalina Georgieva said on Thursday (Apr 11) that China needs to boost domestic demand and shift more of its economy towards services to reduce problems caused by excess manufacturing capacity in certain sectors.

Georgieva told an Atlantic Council event in Washington that China could step up its economic output by 20 per cent in the coming years if it follows the reform advice of the International Monetary Fund.

“We recognise there have been sectors in the Chinese economy over the years where overcapacity has existed,” Georgieva said. “It is critical to develop domestic demand and then shift more of the economy towards services, so this doesn’t persist as a problem for China.”

During a trip to China over the past week, US Treasury Secretary Janet Yellen issued a warning that China’s growing, state-supported excess production capacity in clean energy goods such as electric vehicles and solar panels was unacceptable. She said this was threatening the viability of producers in the US and other countries.

Georgieva said China’s investment-led economic growth model might have worked in the past but could not be sustained in future.

China also has taken some steps to deal with a crisis in its property sector that has turned consumer sentiment negative, but it needs to do more, Georgieva said, adding that Beijing needs to be more decisive in dealing with failing firms.

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However, Georgieva said she has had “very constructive engagement” with Beijing in recent weeks and expected that to continue. REUTERS