China should tighten policy, ease yuan peg: IMF

Booming China should tighten monetary policy to forestall an economic overheating, the IMF said on Wednesday as it renewed its call for a gradual easing of the yuan currency's tie to the US dollar.
In a report on emerging Asia in its World Economic Outlook, which takes the pulse of the world's economies twice a year, the International Monetary Fund expressed concern about over-investment in Chinese economic sectors with surging output, saying this is pushing up costs.
"Despite measures to rein in money and credit growth - including open market operations and an increase in reserve requirements - and tighter prudential oversight of bank lending, credit growth remains strong," the IMF said.
"To mitigate the risk of overheating and avoid the build-up of sectoral imbalances, additional tightening of policies is needed in the period ahead to slow GDP (gross domestic product) growth to a more sustainable pace," the fund said.
China's GDP grew 9.1 percent last year and the IMF said it expects the economy to advance another 8.5 percent in 2004, up from a forecast of 7.5 percent made last September. Growth should moderate to an 8.0 percent clip in 2005.
EMERGING ASIA FACES UPSIDE RISKS: Growth in emerging Asia as a whole should stay strong in 2004, underpinned by domestic demand and the global upturn.
The fund forecast that the economy of the region - China, developing Asia, the newly industrialised Asian economies and Mongolia - should expand 7.2 percent in 2004, matching the growth rate of last year.
"Indeed, there is the risk that credit growth - driven in part by rapid reserve accumulation - may exacerbate financial imbalances in the countries with the strongest cyclical upturns," the IMF said.
Inflation in the region has remained low but with some imbalances emerging, many countries may need to tighten policy and allow their currencies to appreciate, it said.
In a separate note, the IMF said emerging Asia as a whole is generating an increasingly large share of global GDP and is on its way to taking on a major role on the world's economic stage.
To achieve this, emerging Asian countries - in this portion of the report defined as China, Hong Kong, India, Indonesia, South Korea, Malaysia, the Philippines, Singapore, Taiwan and Thailand - must move away from dependence on exports by stimulating internal demand.