IMF's Lagarde says a China slowdown, if fast, would constitute a real risk

Key Points
  • Lagarde's International Monetary Fund (IMF) revised down its estimates for global growth on Monday, warning that the expansion seen in recent years is losing momentum.
  • This came after an initial downgrade in October, where it cut its forecasts on the back of increased trade tariffs between China and the United States.
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Christine Lagarde: The Chinese economy slowing down is legitimate

The International Monetary Fund's Managing Director, Christine Lagarde, told a panel in Davos that the current slowdown in China's economy is "legitimate," but warned it could pose a major risk if the downtrend started to accelerate.

Speaking at the World Economic Forum (WEF), Lagarde said while China's slowing growth has been a concern, it looked to be under control.

"That the Chinese economy slowing down is fine. It is legitimate its is right and I think it is very much to be controlled by Chinese authorities," she told CNBC's Geoff Cutmore.

The Dow Jones Industrial Average sank 300 points on Tuesday after China reported its slowest economic growth in almost three decades. A long-running trade battle with the U.S. has accentuated fears that the world's second-largest economy could slow more than previously expected.

"Should the slowdown be excessively fast, it would constitute a real issue both domestically and probably on a more systemic basis," Lagarde added.

Also speaking on the panel was Hugo Shong, founding chairman of IDG Capital. His firm was the first global investment firm to enter China in the 1990s and an early investor of Baidu, Tencent and Xiaomi. Shong said he didn't currently have any real concern over China's cooling economy.

"Yes, in the past you were talking about 8 percent GDP (gross domestic product) growth. Now we have 6.6 percent and I think, given the size of the economy, it is a pretty good number," he said.

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Fintech is going to shake the system, Christine Lagarde says

World growth downgraded

The International Monetary Fund (IMF) revised down its estimates for global growth on Monday, warning that the expansion seen in recent years is losing momentum. This came after an initial downgrade in October, where it cut its forecasts on the back of increased trade tariffs between China and the United States.

It said the latest revision is due in part to carry over from last year, mentioning the trade conflict but also weakness for German auto manufacturers due to new fuel emission standards, and soft domestic demand in Italy.

On Monday, China said its official economic growth came in at 6.6 percent in 2018 — the slowest pace since 1990. Economists polled by Reuters had predicted full-year GDP to come in at that pace, which was down from a revised 6.8 percent in 2017. Fourth quarter GDP growth was 6.4 percent, matching expectations.

—CNBC's Huileng Tan contributed to this article.