By David Lawder and Andrea Shalal
WASHINGTON (Reuters) -China must rebalance its economic growth model towards domestic demand, which has been weak for some time due to the country's property bust, the International Monetary Fund said on Tuesday, highlighting a message it has long delivered to Beijing.
The renewed public emphasis in the IMF's World Economic Outlook is significant following U.S. Treasury Secretary Scott Bessent's calls for the global lender to step up its criticism of China's economic
policies as part of a back-to-basics directive in April. Bessent's former chief of staff, Dan Katz, has recently taken over the IMF's influential No. 2 position.
The IMF's chief economist, Pierre-Olivier Gourinchas, told a news conference that China continues to produce higher volumes of manufactured goods for export, but prices of these goods are falling.
"And that suggests that somehow the market has limited capacity to draw all that is being produced," he said, adding that China's export growth engine is sputtering.
"Our advice to the Chinese authorities for some time now has been to rebalance towards a sustainable domestic demand," Gourinchas said.
In a blog posting accompanying the IMF's forecasts, Gourinchas described China's outlook as "worrisome."
"Financial stability risks are elevated and rising as real estate investment continues to contract, overall credit demand remains weak, and the economy teeters on the edge of a debt-deflation trap," he wrote.
He told reporters that China's domestic demand has been weak for more than four years because of a still-unresolved property crisis that has left the banking sector saddled with non-performing loans and which is weighing on consumer and business sentiment.
Gourinchas also said China's pivot to subsidize investment in strategic sectors such as electric vehicles has had mixed results, fueling growth in these sectors but contributing to a broader misallocation of resources and significant fiscal costs.
(Reporting by David Lawder and Andrea Shalal; Editing by Paul Simao)
