The International Monetary Fund said Wednesday that the downside risks to its growth projections for China have increased and that the country must expedite transition to a new growth model, which is more consumption-based and inclusive.
The IMF forecasts the economy to grow 7.8 percent this year and by 7.7 percent in 2014, lower than its projections in April. "Downside risks to staff's 2013 growth projection have increased," the IMF staff said in an annual report on the economy.
"Time is running out on the current model which has relied on extensive growth—factor accumulation and relocation of labor from the countryside to factories," the lender said. Continuing the current growth model will lead to a further build-up of excess capacity and misallocation of resources, it added.
Without necessary reforms, the convergence process would stall, with the economy slowing to around 4 percent, and GDP per capita would remain about a quarter of that of the United States through 2030, the report warned.
"The challenge for China now is to accelerate its transition to a more balanced and sustainable growth path with a decisive new round of reforms that address the growing risks in various parts of the economy and unleash new sources of growth," said Markus Rodlauer, the IMF's mission chief for China.
China's growth outlook is clouded by mounting domestic vulnerabilities in the financial, fiscal, and real estate sectors, the IMF staff noted. Potential spillovers from developments in the euro area and major advanced economies continue to pose external risks, they added.
Though China has the capacity to withstand shocks, IMF Directors felt that a further strengthening of policy buffers over time would be desirable.
Directors agreed that the contribution of off-budget, quasi-fiscal activity was a major factor in supporting demand since the global financial crisis. Nonetheless, they advocated gradual unwinding of this activity to limit fiscal risks.
However, China should use on-budget fiscal stimulus, focused on consumption, if economic growth slows down too sharply, the report said.
The report noted that the near-term challenge is to contain risks to financial stability, by reining in credit growth and nontraditional forms of lending.
The IMF stressed on the the importance of accelerating structural reforms under the Twelfth Five-Year Plan. The lender called for continued liberalization of the capital account, but this should be carefully sequenced with financial and exchange rate reforms.
The Fund noted that further progress on demand rebalancing is particularly crucial, including by opening markets to domestic and foreign competition.
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April 24, 2026 15:15 ET Economics news flow was relatively light this week even as the conflict in the Middle East continued, raising concerns for policymakers. In the U.S., spending data, initial jobless claims and pending home sales were the highlights. Business confidence in the biggest euro area economy was in focus in Europe. Inflation data from Japan gained attention in Asia.