IMF official urges China to shift fiscal focus away from industrial policy

By Leika Kihara

WASHINGTON (Reuters) -China has scope to ramp up fiscal stimulus, but should shift the focus of spending away from industrial policy and toward steps to boost consumption, a senior International Monetary Fund official said on Thursday.

The Chinese economy remained resilient despite higher U.S. tariffs due to strong exports, though growth is likely to moderate to 4.2% next year from 4.8% in 2025, said Krishna Srinivasan, director of the IMF's Asia and Pacific Department.

"Uncertainty remains high. Deflation pressures persist in China," Srinivasan said in a press conference during the IMF and World Bank annual meetings in Washington.

"Near-term, China has fiscal space to provide more support to the economy," though the key would be to rebalance its economy from a model reliant on external demand toward one that focuses more on achieving consumption-led growth, he said.

"That's the policy package we are advocating," Srinivasan said. While China's exports are performing well, pivoting toward a more consumption-led growth model is "important both for itself and the rest of the world," he added.

The priority would be to fix China's lingering real estate problem, which has dampened consumer confidence and household spending, Srinivasan said.

"It's important to make sure that the housing crisis is fixed in a durable way through comprehensive policies that will help boost consumption," he said.

China should also take comprehensive measures to improve its social safety net and revitalize its services sector, Srinivasan said.

"An area where China can do a lot more is services. I think that has not been exploited enough, so services-sector emphasis would generate lots of dividends for China," he said.

(Reporting by Leika Kihara; Editing by Paul Simao)

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