2010-07-28 13:42

WASHINGTON - The "quick, determined and effective" policy response of Chinese authorities has helped mitigate the impact of the financial crisis and ensured that China has led the global recovery, the International Monetary Fund (IMF) said on Tuesday.

"Executive Directors commended China' s proactive and decisive policy response to the global economic crisis," the IMF Executive Board said in its annual report that assesses China's economic policy and was released after consultations with Chinese authorities.

The IMF praised China for its adoption of fiscal stimulus during the crisis.

"Public infrastructure spending was quickly increased, taxes were lowered, the government put in place incentives to boost purchases of consumer durables, and pensions, social transfers, healthcare and education spending were all raised."

On monetary policy, the report said China's central bank lowered interest rates and reserve requirements, and removed limits on credit growth, which led to an extraordinary surge in bank lending.

"These policies were instrumental in arresting the downward momentum to both activity and confidence."

China's economic growth began to pick up in the second quarter of 2009 and reached an average of 9.1 percent for that year. The IMF expected the robust economic growth to continue.

The report said China's economic recovery has "significant positive spillovers" to the region and the world economy as a whole, both through increased demand for commodities and through higher imports of capital goods.

China's recovery has driven up its demand for big-item commodities such as crude oil, metals and agricultural products, which contributed to a surge in global commodity prices, it said.

On the other hand, economic recovery boosted the country's demand for imported goods, resulting in a quick decline in its current account surpluses.

The IMF said it believed that the main policy challenge Chinese authorities face now is "to calibrate the pace and sequencing of exit from the fiscal stimulus and credit expansion, while making further progress in reorienting the economy toward private consumption."

The report considered it appropriate that China maintains fiscal support for a steady resumption of private demand, while suggested a gradual phase out of the fiscal stimulus in 2011, provided the current trajectory for the economy is maintained.

The IMF also expressed its appreciations for the recent decision by China's central bank to return to the managed floating exchange rate regime, and commended the government for "its pragmatic deployment of a range  of countervailing prudential measures to contain property price inflation."