China transitions to higher-quality growth, RMB not undervalued

BEIJING -- The world's second largest economy is transitioning to a new normal, aimed at safer and higher-quality growth, and its currency is no longer undervalued, a senior official with the International Monetary Fund (IMF) said on Tuesday.

The transition is both "challenging and necessary" with a bit slower growth, said David Lipton, first deputy managing director of the Washington-based organization.

"Growth in China is moderating -- a slowdown that is not a goal unto itself but a by-product of moving the economy away from the unsustainable growth pattern of the past decade," he said at a press conference in Beijing.

The IMF projected the Chinese economy to grow at 6.8 percent this year, largely in line with the authorities' growth target of around 7 percent, Lipton told reporters.

The Chinese labor market has remained resilient despite slower growth, which, in turn, has supported household consumption. Inflation is expected to end the year at around 1.5 percent, according to a statement issued after the IMF's 2015 Article IV Consultation with China.

The Article IV Consultation is an annual economic and financial check-up between the IMF and its member countries.

"While undervaluation of the Renminbi (RMB) was a major factor causing the large imbalances in the past, our assessment now is that the substantial real effective appreciation over the past year has brought the exchange rate to a level that is no longer undervalued," Lipton said.

"As part of the ongoing review of the Special Drawing Rights (SDR) basket at the IMF, the Chinese authorities have stated publicly their interest in including the Renminbi in the SDR basket. We welcome and share this objective and will work closely with the Chinese authorities in this regard," he added.

The IMF has launched its five-year review of the SDR basket, an international reserve asset that currently includes the U.S. dollar, Japanese yen, British pound and the euro. Whether to add the yuan to the basket is a major issue for this year's assessment.