IMF:China needs to reform its financial system

The International Monetary Fund (IMF) said Thursday China needs to reform its financial system in order to balance its export-dependent economic growth model. Since the 2008 financial crisis hit economies around the world, China has maintained its economic growth by encouraging domestic spending so as to reduce its heavy reliance on exports. "Financial liberalization will be essential in transforming China's economic model to one of more inclusive growth, raising household incomes, boosting domestic consumption and reducing the reliance on exports as an engine of growth," the Washington-based agency said in a statement. The IMF said its economists completed last week their regular assessment of the world's No. 2 economy. The IMF economists called for China to carry out a comprehensive set of reforms, which include increased flexibility of foreign exchange rates and more market-determined loan and deposit interest rates. In moving ahead with financial liberalization, the IMF highlighted the importance of allowing the yuan to appreciate to give greater monetary policy autonomy to the central People's Bank of China and to reduce the pace of foreign reserve accumulation. "A stronger yuan would increase household income, boost consumption, make China's manufacturing products more affordable for the Chinese people and help build a stronger service economy," said Nigel Chalk, the IMF's mission chief for China. The economists also said China's system currently leaves many depositors shortchanged, with deposit rates well below the rate of inflation. While recognizing financial liberalization is likely to be a complex and lengthy process, which would need to be carefully sequenced, the IMF stressed that continuing to delay it could mean that the financial system evolves in an uncoordinated and disorderly fashion, outpacing supervisory capabilities.