IMF Speaks About China’s Currency Policy: It was long time since the Chinese Central Bank should have done something to correct the current trend of the yuan currency; the recent financial market’s crash and the slowdown in industrial production were clear signals of economics cracks starting to surge in the Chinese economy. On its periodical report about China, the IMF said that the recent devaluation policy was due to happen and that in the next years the currency will end up by being completely market linked and will be part of the world’s reserve currency list, which for now includes the US dollar, the Canadian dollar, the Euro and the English Pound.
Moreover, the IMF underlined that government policies and credit regulation policies have to be introduced if China wants a market-based economy: improving the management of government finances and leveling the playing field between state-owned enterprises and the private sector. In its annual assessment, the IMF urges the government to push forward with structural reforms and accept lower growth in the short term to secure sustainable and stable growth in the long run—a trade-off that is worth making and in China’s best interest.
Since the global financial crisis, China has relied on an unsustainable growth model of excessive credit and investment, which has created large vulnerabilities in the fiscal, real estate, financial, and corporate sectors. Moving to a more sustainable growth path requires reversing these trends. The Chinese leadership has set out a comprehensive reform agenda and has made considerable progress in reducing these vulnerabilities, the report points out.
China has made good progress on a variety of structural reforms, such as permitting more flexibility in interest rate settings, gradually opening up the capital account, and establishing the new budget law. However, the country needs further bold reforms to transition to a more open and market-based economy. The report highlights two key areas: financial sector and reform of state-owned enterprises. The report also makes the case for deepening reforms of state-owned enterprises. Here, leveling the playing field between private and public enterprises is critical to make room for the private sector to grow and hence fuel future growth and create jobs. Additional reforms include increasing dividend payments, strengthening governance, and ultimately allowing the exit of unviable state-owned enterprises.
In conclusion, the last currency devaluation is part of the vast package of reforms and improvements needed to China’s economy to assure the future’s stability, yet growth. It’s now time to rest and grow at a normal peace, if the eastern tiger wants to assure its population a promising economic future, otherwise sooner or later it was clear that the current set up in policies and regulation would not have been a good way to drive the economic progress.