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China needs to look at 'alternative' stimulus: IMF’s Lipton

China must watch its 'vulnerabilities' closely: IMF
Key Points

Worries over a China slowdown may be overdone, but the government should be examining new ways to support the economy, David Lipton, deputy managing director at the IMF, has told CNBC

"They have to watch (for) vulnerabilities," he said, as the global organization reaffirmed targets of around 7.5 percent growth in gross domestic product (GDP) for China this year.

"There's no magic number and they shouldn't be pushing for the fastest possible, but the fastest sustainable growth rate."

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Growth in China, which is poised to overtake the U.S. as the world's biggest economy, slowed to less than 6 percent in the first quarter as demand for its exports slowed – below the IMF target and notably lower than the 10.4 percent recorded in 2010.

"The global economy's going to give them a lift in the second half of the year," Lipton said.

There are also concerns about a slowdown in the property market, and the threat of bad loans choking up the country's shadow banking sector.

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"The biggest downside risks center on the deceleration of credit growth and the working-off of excess capacity in several industries, including but not limited to construction," according to analysts at Goldman Sachs.

"The credit overhang is very large but the authorities have a wide array of tools to stretch out the adjustment over time."

The Chinese government has so far pursued a cautious "mini-stimulus" approach by bringing forward infrastructure projects and issuing new bonds.

"If they turn around on low interest rates they may just re-inflate those same bubbles," Lipton said.

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"We think that they need to look at an alternative way to support the economy."

Christine Lagarde, Lipton's boss at the IMF, has recently been linked with the position of European Commission President, although she has expressed her commitment to her current job.

"We sure like having her at the IMF," Lipton said.