China`s growth could fall to 4-pct. range this year: IMF

The International Monetary Fund said Tuesday that China`s economic growth could fall to the 4-percent range if the eurozone`s woes deepen, urging Beijing to prepare stimulus measures in response.

China`s export-dependent economy is highly exposed through trade links, with a large volume of Chinese exports going to Europe. Lower import demand will reduce corporate profitability and household income, which in turn could lower GDP growth, the IMF said.

The contribution of exports to GDP growth in China was minus 0.5 percent last year, and could further fall to minus 0.9 percent even if growth of the Chinese economy falls to 8.2 percent, the international organization said, citing export growth trailing that of GDP.

The IMF asked Beijing to carry out fiscal stimulus like it did in 2008 to cope with the eurozone crisis. According to the IMF, fiscal injection of about 3 percent of GDP could boost economic growth by around 3 percentage points, which can cushion the worst scenario of the eurozone crisis by boosting the Chinese economy to 7 percent growth.

In China, consumer inflation remains stable thanks to the government’s efforts and is expected to remain under 4 percent this year. Real asset prices including those of housing are also expected to slow down due to government intervention.

The economic outlook report for China is part of the IMF’s latest release of regular forecasts for economies around the world.

Fitch also said a hard landing by China is potentially the biggest risk for the global economy. Andrew Colquhoun, the Hong Kong-based head of Fitch`s Asia-Pacific ratings, said that amid the slowing global economy, China’s real estate market and banking sector are threatening the Chinese economy. The threat of a hard landing by the Chinese economy is the biggest potential risk for the global economy this year, he said.

In China, fears are rising of deflation and yuan depreciation occurring at the same time. Wu Qing, an economist at the Development Research Center of the State Council of the People’s Republic of China, told the China Economic Times Friday, “Due to the side effects of excess monetary tightening, China’s consumer price index could plunge in this year’s second half,” warning of typical deflation unless Beijing takes drastic action.

“The government put the brakes on excess tightening policy in last year`s fourth quarter, but this wasn`t enough to turn the situation around,” he added.

In contrast, S&P said early this month that the possibility of a hard landing for China is very low, citing a 25-percent chance that GDP growth will fall to the 7-percent range and a 10-percent probability for a drop to the 5-percent range.

Doug Guthrie, an international business professor at the George Washington University in Washington, said China`s central bank has enough firepower to deliver a solid stimulus to keep the country growing and could help economic recovery.