The International Monetary Fund on Wednesday raised its economic forecast for China while calling for the government to speed up its reform agenda.
The IMF projected China's gross domestic product (GDP) to grow 6.7 percent this year, from its previous estimate of 6.6 percent. It also predicted GDP growth of 6.4 percent during the 2018-2020 period.
"China continues to transition to a more sustainable growth path, and reforms have advanced across a wide domain," IMF First Deputy Managing Director David Lipton said in a statement on Wednesday after his staff completed its annual Article IV mission to China. Article IV review is IMF's annual assessment of the health of an economy.
An IMF mission visited Beijing and Lanzhou from June 1-14 to discuss the annual review. Lipton joined the final policy discussions and met with Vice-Premier Ma Kai, People's Bank of China Governor Zhou Xiaochuan and other senior Chinese economic officials.
"Our discussions in the past two weeks focused on the policies needed to ensure China's successful transition, which is vital to its own people and the rest of the world — and the urgency of accelerating the pace of reforms," Lipton said.
He said that policy support, especially expansionary credit and public investment, has helped China maintain strong growth.
China's economy grew 6.9 percent in the first quarter of 2017, faster than expected.
"China has the potential to safely sustain strong growth over the medium term," Lipton said. But he stressed that as also recognized by Chinese government reform plans, it requires deep reforms to transition from the current growth model that relies on credit-fed investment and debt.
"It is critical to start now while growth is strong and buffers sufficient to ease the transition," he said.
Lipton said that Chinese authorities are fully aware of the challenges and have taken crucial and welcome measures.
According to Lipton, important supervisory and regulatory action is being taken against financial sector risks. Corporate debt is growing more slowly, reflecting restructuring initiatives and overcapacity reduction.
The housing-price boom is being gradually contained, and excess inventory reduced. Local government borrowing frameworks are being improved, and a blueprint for reforming central-local fiscal relations has been published.
The creation of new businesses has tripled since the 2014 reform. Data weaknesses have been recognized, with actions taken to improve integrity.
"While some near-term risks have receded, reform progress needs to accelerate to secure medium-term stability and address the risk that the current trajectory of the economy could eventually lead to a sharp adjustment," he said.
"This means switching faster from investment to consumption; increasing the role of market forces; implementing a more sustainable macro policies mix, continuing the regulatory tightening; tackling nonfinancial sector debt; and further improving policy frameworks," he said.