IMF Says China Is Losing The Battle To Slow Its Economy

IMF report urges China to change its currency policy or face protectionist backlash.

WASHINGTON (AP) – The International Monetary Fund (IMF) has cast doubt on the success of China's efforts to slow its booming economy, and a report by the 184-nation fund urges Beijing to revamp its currency policy to avoid a protectionist backlash.

As its economy soars, China has sought to rein in a boom in construction and bank lending that it worries could ignite inflation or a financial crisis. The government said in October that growth slowed in the July-September quarter in response to curbs imposed to avert overheating.

Steve Dunaway, deputy director of the IMF's Asia department, told reporters Tuesday that he had ''considerable doubts that they're winning the battle'' to slow the economy. ''To some extent the Chinese are working against themselves with respect to financial reform.''

American manufacturers have long complained that China is keeping the value of its currency artificially low, making Chinese goods cheaper in the United States and American products more expensive in China. That, they say, contributes to the loss of U.S. factory jobs. Chinese leaders have said they plan eventually to let their currency trade freely on world markets but to do so immediately would cause financial turmoil and damage the Chinese economy.

Dunaway said the past few months have seen a more rapid rate of appreciation for the Chinese currency than in the first part of the year. He urged the Chinese to do more.

''We think what's needed is greater flexibility in the exchange rate'' and for Beijing to give ''the People's Bank of China more discretion in setting both the interest rates and the exchange rates so that they have more latitude to operate with monetary policy,'' he said.

The IMF report, a regular review of China's economy, said that as the country's export market share rises, ''frustration in many trading partner countries with China's slow pace of exchange rate appreciation has been mounting. This runs the risk of exposing China to renewed protectionist measures.''

The report said a ''major risk'' lies in the growing protectionist sentiments in China's major markets, especially in the United States and the European Union.

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