IMF advises Chinese on encouraging consumers

China should keep cooling its property market and improve its social safety net for budding consumers, the ­International Monetary Fund (IMF) has urged .

The fund made the statement last week after a directors’ report on China, which praises its response to the financial crisis but says it may need to do more to dampen property prices.

“Additional measures could be needed to address the fundamental causes of property price inflation, ­possibly including consideration of a property tax and broader financial market development to provide alternative savings vehicles,” it says. (article continues below)

The IMF adds that China should continue to invest in its social safety nets, which it says are key to boosting consumption. Inadequate pensions, unemployment benefits and healthcare coverage have prompted millions of Chinese to boost their savings, damaging domestic consumption.

In the face of declining exports to the developed world, the IMF says that in the opinion of many of its directors China should shift to domestic consumption as the main ­driver of growth.

Although IMF directors support China phasing out its stimulus package in 2011, they see “room for further reorientation of the stimulus package toward measures that promote private consumption, raise household income, lessen income inequality and improve the social safety net”.

The IMF praises China’s actions so far – boosting credit growth, consumer incentives and government spending and reducing taxes, interest rates and reserve requirements.