IMF's Lagarde: China Must Avoid Getting Stuck In "Middle Income Trap"

(RTTNews) - China's must avoid sliding into a "middle-income trap" and the structural reforms adopted by the government will lead to a slower, but more sustainable growth, International Monetary Fund Managing Director Christine Lagarde said Friday.

"China's biggest challenge is to avoid getting stuck in what economists call the "middle-income trap"," Lagarde said in a speech in Fudan University, Shanghai.

She noted that China is determined to become a high-income country by 2030 and the government has launched deep structural reforms to boost incomes and living standards in the long term.

"These reforms will lead to a "new normal" of slower, safer, and more sustainable growth," Lagarde said. The lender forecast 6.8 percent growth for China this year.

Elsewhere today, the Organisation for Economic Co-operation and Development predicted 7 percent growth for China this year and 6.9 percent for 2016.

In a report, the Paris-based think-tank said further reforms are needed to ensure that future growth is resilient, inclusive and green. In 2014, the Chinese economy grew 7.4 percent, roughly in line with the official target of 7.5 percent.

"Slower, safer, and more sustainable growth is good for China and its people - and it is good for the world," IMF's Lagarde said. "By brewing its economic cup of tea more slowly, China will end up with a richer taste."

The IMF Chief also said that maintaining the reform momentum will be essential and urged China to take further steps to liberalize the deposit rates and the exchange rate. She also sought removal of implicit government guarantees, especially for state-owned enterprises.

"China has a key role to play in shaping a stronger form of global cooperation, which I have called the "new multilateralism"," Lagarde said.

Turning to the global economy, Lagarde said recovery remains fragile because of significant risks such as the prospect of an interest rate hike from the U.S. Federal Reserve.

In an interview to the state news agency Xinhua, Lagarde said China's economy faces rising risks in a number of areas, including real estate, local government financing, and the financial system.

"In the near term, the risks are manageable, thanks to a number of buffers, including high domestic savings, a strong external position, and a still-robust government balance sheet. However, timely and steadfast implementation of the reform agenda is needed both to prevent a further build-up of risks and put the economy on a sustainable growth path," Lagarde said.