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IMF urges China to further address overcapacity issues

The International Monetary Fund has urged the Chinese government to broaden its efforts to address overcapacity in at least 10 sectors, including coal, steel and aluminum, the fund said in its latest annual assessment of the economy.

Even though it said initial progress had been made in reducing overcapacity, the IMF called on Beijing to deepen the reforms with greater reliance on market forces.

"Efforts should focus on more ambitious net targets within coal and steel and a broadening of targets to other sectors," the Aug. 15 report stated. "Reform efforts also need to address the origin of overcapacity which is a combination of high GDP growth targets met through state-directed investment spending, soft budget constraints which allow loss-making firms to stay in business, and underpricing of long-term environmental damage. Indeed, until market forces more fully drive resource allocation, new overcapacity sectors are likely to emerge."

Overall, the IMF said China's economy could sustain strong growth over the medium term, projected at 6.7% in 2017, but required further reforms to be less reliant on debt and investment.