IMF says China's economy reached 'soft landing'

SHANGHAI (AP) -- China has achieved a "soft landing" in its economic slowdown, the IMF says while cautioning that more sweeping reforms are needed to ensure healthy growth in the longer term.

In a report Wednesday on its website, the IMF praised China's leaders for adjusting policies to help counter the malaise plaguing the global economy that has also slowed robust growth in China and other emerging nations.

"China's economy seems to be undergoing a soft landing, though global headwinds are increasing," said the report, issued after IMF consultations with Beijing.

It notes that China has reduced some imbalances in the world's second-biggest economy, such as its once huge trade surplus, and brought inflation under control. But it pointed to risks from excessive bank lending and urged more effective regulation to ensure financial stability.

"Overall we are very confident that China is experiencing what we would call a soft landing," Markus Rodlauer, deputy director of the IMF's Asia & Pacific Department, said in a video interview.

"This means growth of about 8 percent. This is less than it was in the past but still it compares very favorably to what is happening around us," he said.

China's second-quarter growth fell to a three-year low of 7.6 percent as exports, consumer spending and factory output weakened. Analysts say a rebound might begin in the second half but could take longer to take root and be weaker than previously expected.

That has dampened hopes it might make up for weak Western demand and drive global growth. Just a week earlier, the IMF had cut its 2012 growth forecast for China's economy by 0.2 percentage point to 8 percent and said a "hard landing" was still possible.

It forecasts growth in 2013 of 8.5 percent.

Preliminary results of a monthly survey of Chinese manufacturers released Tuesday showed the contraction in manufacturing eased in July. HSBC's Purchasing Managers' Index, which combines various measures of manufacturing activity, rose to 49.5 from 48.2. Readings above 50 denote growth. The individual gauge of factory output showed an expansion in production.

On Wednesday, a senior official from the Ministry of Industry and Information Technology told reporters in Beijing that data over the past three months showed industry production was stabilizing.

However, Zhu Hongren, the ministry's chief engineer cautioned that growth remained relatively weak.

"We need to do more to ensure stable and rapid development of the industrial economy," Zhu said.

China has cut interest rates twice since the start of June and is seeking to counter its slowdown through higher spending on public housing and other public works and investment by state-owned industry. It is moving cautiously, hoping to avoid the inflationary overheating unleashed by recession-fighting stimulus in 2008 and 2009.

Authorities say curbs imposed on home sales to cool surging housing prices will remain in place, even though allowing more construction could quickly boost growth. Rodlauer, the IMF economist, said there were some signs of recovery in the housing sector.

"We now have seen three property cycles over the past 10 years," Rodlauer said. "There is a need to reduce this boom and bust in the property sector."

Healthy longer term growth will hinge on Beijing's success in stimulating domestic demand and reducing its reliance on investment, especially in construction, to drive growth, he said.

"China has tremendous potential and will continue to grow rapidly, but to tap this potential it will have to change," he said. "A host of reforms are necessary."