The International Monetary Fund (IMF) lowered its forecast for China's economic growth in 2012 from 9.0% expected in September last year to 8.25% in the China Economic Outlook report released on Monday, and expects China's economic growth forecast for 2012~2013. Will remain above 8%. But the IMF warned that if the euro zone is in a serious recession, China's growth rate is likely to fall sharply. The IMF suggested that China should fine-tune its monetary policy in order to properly issue credit, and it is necessary to provide appropriate financial support. At the same time, China should accelerate economic transformation to reduce the adverse effects of fluctuations in global demand. Affected global economic weakness The IMF said in the report that the pressure on the euro zone and the fragility of other regions are threatening the global recovery. Due to the weak global economy, IMF staff have lowered their growth forecasts for China. However, the IMF believes that China's economic growth rate may slow down, but it will still be at a healthy level. The economic growth rate will start to accelerate in the latter part of this year and will rise to 8.75% in 2013. China's economic growth rate in 2011 was 9.2%. Investors are currently awaiting the release of a series of Chinese economic data. Analysts generally expect inflation to slow steadily, but the export industry will fall further. The report pointed out that China's inflation has "fallen down", but it is still vulnerable to supply-driven food price increases, and volatile food prices are still a significant vulnerability factor. China's inflation fell to 4.1% at the end of 2011, and the IMF expects inflation to continue to decline steadily in the first few months of this year. However, the IMF warned that, as in 2008-2009, a severe recession in advanced economies will lead to a decline in Chinese exports, which will have a greater impact on China. It is expected that the contribution of net exports to economic growth will be greatly reduced in the next two years, and the current account surplus will remain at 3% to 4% of GDP. The IMF said that due to the narrowing of the trade surplus and the global risk aversion, the recent appreciation of the renminbi has decreased, and the growth rate of China's foreign exchange reserves has also slowed down. However, the agency pointed out that given China's current account surplus is still huge, and foreign direct investment (FDI) is still strong, foreign exchange reserves will resume growth this year. China's biggest concern: trade and real estate have fallen sharply at the same time Although the main reason for the IMF's downward revision of China's economic expectations is the weak global economy, the organization also warned that major external shocks will expose many of China's domestic risks more prominently. In the IMF's view, China's biggest concern is that "the trade and real estate sectors have also experienced a sharp decline in self-reinforcement." This may result in a decline in prices, volume, and real estate-related investments that exceed expectations. The IMF said that the Chinese government's measures to regulate the real estate industry have achieved results, and both house price growth and real estate transactions have declined. In order to prevent the real estate market from slipping, the government can directly purchase real estate for affordable housing and selectively relax some administrative purchase restrictions for first-time buyers, low-income groups and affordable housing buyers. However, the IMF pointed out that the government must maintain restrictions on real estate loans (such as loan value ratio) to protect the financial system from the impact of the real estate market downturn. In addition, the report also pointed out that in the past year, the government restricted bank loans through administrative means, which led to the transfer of funds to a non-bank financial system with poor transparency and a low degree of supervision. This has brought greater worries to currency control and financial stability. The IMF believes that this accelerating financial innovation complicates macroeconomic policies and increases the liquidity pressure of small banks. Although this is unlikely to pose a systemic risk in the short term, if it is not addressed, the vulnerability will continue to accumulate. Fiscal measures should be the main defense line The IMF said that although economic growth is expected to slow down, China has the space to respond to the economic slowdown through fiscal measures. "A package of fiscal measures (about 3% of GDP) should be the main line of defense." China should use these measures to further stimulate the domestic economy. Specifically, the IMF recommends that stimulus measures include: further reducing social security contributions and consumption taxes, providing direct subsidies for the purchase of durable consumer goods, stimulating companies to expand investment in low-pollution, low-energy projects, providing financial support for small businesses, and promoting affordable housing. Plan and increase investment in the social security system. However, the IMF warned that, unlike the $4 trillion stimulus in 2008, the stimulus package should be implemented through budget rather than relying on public infrastructure programs implemented through banking systems, state-owned enterprises and local government financing platforms. The 2009-2010 stimulus has raised concerns about credit quality and bank balance sheets, and this concern remains. This means that as the European debt crisis continues to develop, any currency response China has taken is limited. But China’s inflation rate has peaked and will fall back to a more reasonable level, which will create conditions for the Chinese government to fine-tune monetary policy and appropriately increase credit supply. Specifically, the central bank should relax market liquidity through weekly open market operations in the coming weeks. The IMF said that if capital inflows continue to be suppressed, the Chinese central bank may choose to further cut the bank reserve requirement ratio. In the face of the economic slowdown, the People's Bank of China cut the bank reserve requirement ratio by 0.5 percentage points in December last year, the first time since December 2008. In addition, the IMF believes that China still needs to make great efforts to digest the side effects of the credit surge after the global crisis, especially the slowdown in the growth of the real estate and export sectors, which brings the risk of balance sheet and the potential loss of local government financing platform loans.
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