IMF lifts China growth forecast but warns on industrial policy

BEIJING

The International Monetary Fund (IMF) on Wednesday raised its yearly growth forecast for China, but warned that Beijing's industrial policy risks a "misallocation" of resources and could harm trade.

The world's number-two economy has been battered in recent years by a long-running debt crisis in the property market, which accounts for a quarter of gross domestic product, while weak consumer spending and persistent deflation are also dragging on growth.

But there are some signs of recovery: growth beat forecasts in the first quarter of the year, which Beijing described as a "good start."

And the IMF said yesterday that those figures and "recent policy measures" to lift the economy had allowed it to raise its growth forecast for the year to 5 percent, in line with a target set by authorities in March.

The IMF had initially projected 4.6 percent expansion, adding that it welcomed steps in recent weeks to boost the property market.

"The ongoing housing market correction, which is necessary for steering the sector towards a more sustainable path, should continue," it said.

But, it added that "a more comprehensive policy package would facilitate an efficient and less costly transition while safeguarding against downside risks."

It also warned Beijing's strong support for strategic industries risked a "misallocation" of resources and trade blowback.

"Scaling back such policies and removing trade and investment restrictions would raise domestic productivity and ease fragmentation pressures," the latest report said.

Beijing has faced growing pressure in recent months to curb industrial "overcapacity," with the United States warning excessive state subsidies could flood global markets with cheap goods.