The IMF is working with the Chinese government to improve access to financial services, as a means of boosting domestic consumption, Anoop Singh, the Fund director for Asia and the Pacific, said yesterday.
"Its important to build another engine of growth," Singh said. "In China it means raising consumption."
The IMF indicated yesterday in its World Economic Outlook that domestic demand is contributing more to growth in China.
"On average over 2010-11, private domestic demand is poised to contribute two-thirds of near-term growth, and government activity about one-third, whereas the contribution from net exports will be close to zero," the report said.
Singh said one means of achieving this is to improve access to finance for households and small and medium-sized businesses.
"Broader financial development would help increase investment options for households and raise the returns on savings, boosting household income and helping with consumption," he added.
The initiative is under discussion at a time when boosting domestic demand, and reducing the economys reliance on exports, is seen as a vital precondition for sustainable growth in China, and ultimately for resolving persistent global financial imbalances that some say contributed to the 2008 crisis.
The household savings rate in China is currently at about 30% of disposable income. Corporate savings rates have also doubled in past decades, helping China hit a gross aggregate savings rate of more than 50% of GDP.
Singh said uncertainty about access to financing prompts companies to save considerable sums to finance future investment, but "a more developed financial system would reduce that tendency."
The cooperation between the IMF and Chinese government comes as part of the Financial Sector Assessment Program. Put in place after the 1997 financial crisis, the FASP is a means for the IMF to monitor developments in global financial markets.
The level of borrowing in China is remarkably low. China has an estimated ratio of 0.12 bank loans per adult, compared to a ratio of 0.82 bank loans for each adult in developed banking markets.
The low levels of borrowing are caused in part by the difficulty for rural Chinese in accessing credit or even finding a bank to deposit cash. Many state banks withdrew from rural China in the late 1990s as they chose to pursue expansion in more profitable urban areas.
According to statistics released by the Chinas Banking Regulatory Commission, 2,945 townships had no bank. More than 700 million people reside in rural China. In 2008, just 60% of 120 million rural households facing financial problems in 2008 could borrow, according to research by Tsinghua University.