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Daily Dispatches – change now China, says IMF

The Financial Times reports that the International Monetary Fund has warned that time is running short for China to implement critical economic reforms as the government, banks and companies come under mounting strain from rapid and unbalanced growth.

In its annual report on the Chinese economy, the IMF sounded a more cautionary note than previously. It said it was “increasingly urgent” for China to shift away from its growth model which relies heavily on credit and investment.

It said the model was “not sustainable and is raising vulnerabilities” and that “while China still has significant buffers to weather shocks, the margins of safety are diminishing”. China’s new leaders, who took the reins in March, have vowed to step up reform efforts, but have yet to make any significant moves.

The IMF said a “round of decisive measures” was necessary to ensure the economy’s continued success, adding that the immediate priority was to “rein in broader credit growth and prevent a further build-up of risks in the financial sector”.

He should know

Bloomberg reports that China’s richest entrepreneur sees growth slowing in that country in the remainder of 2013.

Zong Qinghou says the nation’s growth will slide further in the second half of the year and proposed cutting taxes and breaking up monopolies to drive an economic recovery.

“People will only invest if there is prospect of making a profit. Medium and small companies are not willing to take loans. If they can’t make a profit, why bother taking a loan?”

But it’s not all bad news

Asia Investor reports that Invesco sees the good side in China’s slow down, saying consumer sentiment is still strong.

Ben puts the brakes on

Fed chairman Ben Bernanke has tempered concerns that quantitative easing will be tapered. The Sydney Morning Herald reports that the US central bank is nowhere close to raising interest rates, assuring markets that the easy money tap would not soon dry up, according to Bernanke. “I don’t think the Fed can get interest rates up very much, because the economy is weak, inflation rates are low,” Bernanke told the House Financial Services Committee. “If we were to tighten policy, the economy would tank.”

 

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