Press Release No. 07/14

Press Release: Statement by IMF Managing Director Rodrigo de Rato at the Conclusion of his Visit to China

January 26, 2007

Mr. Rodrigo de Rato, Managing Director of the International Monetary Fund (IMF), issued the following statement today in Beijing:

"It has been a great pleasure for me to visit Beijing again. During this visit, I have had the privilege of meeting with Premier Wen Jiabao. I also held fruitful discussions with Finance Minister Jin Renqing and People's Bank of China Governor Zhou Xiaochuan.

"Over the past three years, I have visited China several times and have been increasingly impressed by China's continued strong economic performance. Indeed, China has transformed itself into a major economic powerhouse, through rapid growth, job creation, and poverty reduction.

"Sustaining this rapid pace of growth is a challenging task, and we agree with the authorities that this requires rebalancing the economy away from its current heavy dependence on investment and exports and towards consumption. It also requires that prosperity be shared more equally across society, including by addressing the rural-urban income discrepancies. Equally important is to ensure that economic development is environmentally sustainable.

"Rebalancing such a large economy will require a wide range of policy reforms, and China's policymakers are keenly aware of what needs to be done. In the near term, curbing rapid credit and investment growth continues to be critical to prevent overcapacity in certain sectors, and to put growth on a more sustainable footing. Improving the intermediation of China's large savings through further strengthening and developing the financial system and capital markets is key. I welcome the priority that is being given to this as reflected in the outcome of the National Financial Work Conference. Fiscal policy also has a central role in this rebalancing of growth. To increase consumption and reduce savings, China's households need to be reassured of adequate provision of health care, education, and pensions, with a shift in public expenditure to these areas. I strongly support the authorities' plans to move forward with far-reaching reforms on these fronts.

"I welcomed the opportunity to discuss exchange rate policy issues, and was pleased to hear the authorities reiterate their objective of advancing the exchange reform and allowing greater flexibility over time in the renminbi rate to reflect market conditions. Faster movement would provide the authorities much needed room to rely more on monetary policy to manage the economy, particularly to contain the rapid credit and investment growth. Greater flexibility in the exchange rate and interest rates is also important for rebalancing the economy. In addition to providing better price signals for investors, the likely higher interest rates and more appreciated exchange rate in the near term would also help to boost household consumption by increasing household income and wealth.

"I also appreciated the opportunity to exchange views with senior officials on prospects for the global economy and the reform of the IMF. We agreed that the outlook is for continued strong growth, with China making an important contribution, and that downside risks to global growth have moderated in recent months.

"China's continued economic success and stability have become more important for other countries—in the region and worldwide. With the vision of its leadership and their resolve to tackle the challenges that China faces, I am confident that China will continue on its path to achieve greater economic prosperity."