MercoPress. South Atlantic News Agency

IMF warns China on investment “boom-bust” cycle

China's efforts to rein in its economic growth are failing to take effect as firmly as required, raising the risk that its investment boom could turn into a damaging bust, the International Monetary Fund warned Beijing Monday.

In its latest economic report on China's economy, the IMF challenged claims made in Basle by Zhou Xiaochuan, Governor of China's central bank, that efforts to slow the country's economy will prove effective next year. China's growth could easily again top 10% this year and remain strong, the IMF said.

"In the near-term, a significant risk remains that macroeconomic policies will not be sufficiently tight to contain investment growth", said IMF. However IMF made it a point to endorse China's efforts to reduce dependence on investment and exports while encouraging greater consumer spending.

IMF warning came as Customs Bureau figures showed that China's trade surplus hit a monthly record of 18.8 billion US dollars in August, figures bound to increase pressures for a more flexible yuan.

''Greater exchange-rate flexibility is needed to enable PBC to use its monetary policy instruments more effectively'' indicated IMF referring to the People's Bank of China.

''There is a need for monetary policy to prevent a surge in credit growth from tipping off a boom-bust cycle and an associated rise in banks' nonperforming loans,'' IMF said.

The report projects that China's gross domestic product will expand about 10% this year, close to last year's 10.2% growth, and the inflation rate will remain below 2%. The vigor of the economy may ease government concern that a stronger yuan might put many exporters out of business, the report suggested.

China's August surplus brings the trade surplus so far this year to 95.7 billion, compared with a gap of 102 billion US dollars for the whole of last year.

IMF said a more flexible Chinese currency would help smooth out lopsided global flows of trade and investment, which are reflected in China's trade surplus and the U.S. deficit, which widened to a record 726 billion last year. The U.S. gap with China last year was a record 202 billion US dollars. China's international reserves to June reached 941 billion US dollars.