Seminar Series - The Shifting Global Economic and Political Landscape: Integration or Fragmentation?

IMF News, November 22, 2016

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Published: November 22, 2016

China’s growth outlook, labor market, and global contribution

Projected growth range for China during the 13th Five-Year Plan: between 6.2 and 6.7 percent.
6.2 percent: benchmark (floor) scenario without significant new reforms.
6.7 percent: up-limit scenario with additional reforms; growth “won’t exceed 6.7 percent.”
Ideal near-term average suggested: about 6.5 percent (gradual slow from 6.7 percent to 6.5 percent over four years is described as “very good”).
Consequences tied to growth thresholds:
- If growth does not fall below the 6.2 percent floor, cyclical unemployment is not expected to rise.
Urban unemployment and survey measures:
- Current urban unemployment: about 4 to 4.1 percent.
- Surveyed unemployment rate: between 5 and 5.1 percent (does not fully cover migrant workers).
- Migrant-worker unemployment example: “only around 1 percent.”
- Migrant workers: “take about more than one-third of the overall employment in the cities.”
- Adjusted overall unemployment if migrants included: “about four or less than four.”
- Estimated natural unemployment rate: about 4 to 4.1 percent in China.
GDP doubling target:
- 2010 GDP at flat rate price cited as $4.09 billion, with target to double to “about $8 billion, or 8.1 billion at the flat rate” by 2020.
China’s global GDP share and contribution:
- China’s 2015 GDP: about $10.8 trillion.
- World economy 2015: about $73.4 trillion.
- China accounts for about 14.8 percent of world GDP.
- China’s economy is projected to contribute about 1 percent of world GDP growth per year; if the world grows at about 2.5 to 3 percent, China could contribute “a quarter or even a third” of world economic growth.

Risks, debt, and the quality of growth

Risks of growth above the 6.7 percent “ceiling”:
- May reflect stimulants rather than sustainable reform dividend; could lead to overcapacity, higher leverage, asset bubbles, and increased financial-system risk.
Corporate and private-sector debt concerns:
- IMF concern highlighted: corporate debt “in the neighborhood of it getting close to 200 percent of GDP.”
- Policy prescription: control credit flows to unproductive firms; restructure unprofitable enterprises; reinforce creditor rights and corporate governance to enable effective debt restructuring or liquidation when appropriate.
Governance and state-owned enterprises:
- Need for improved governance at state-owned enterprises; restructure unprofitable SOEs to reduce global supply gluts and reduce risk accumulation.
IMF view on desirable growth:
- Preference for long-term sustainable and inclusive growth over short-term stimulus-driven GDP increases.

Global integration vs. fragmentation — political economy and institutions

Overall assessment:
- Panelists emphasize globalization and interconnectedness remain valuable but note strong political pushback (anti-establishment, nationalism, anti-globalization) in advanced economies.
Drivers of political backlash:
- Slow post-crisis growth benefiting “too few,” technological change hollowing out working/middle classes, refugee flows and security threats, perceived abuses by non-state actors and weak governance.
Structural change in global leadership:
- Argument that the world is moving from a Pax Americana toward a leaderless “G-Zero” or an “oligopoly” of major powers (U.S., China, EU now; China, India, possibly U.S. by 2050), with no single hegemon comparable to past centuries.
- Implication: need creative multilateral mechanisms and institutional reform (e.g., IMF mission reorientation, new institutions like AIIB).
Technology and social effects:
- Rapid technological change and AI likely to reshape labor markets, accelerate social and political fragmentation, and increase identity-based political mobilization; effects likely within 10–20 years, not only decades.
Europe and trans-Atlantic risks:
- Europe faces concentrated geopolitical and societal pressures (terrorism, refugees, populism); risks to the Trans-Atlantic relationship could have outsized global consequences.

Exchange rates, capital flows, and IMF policy advice

RMB and exchange-rate guidance:
- IMF view: evaluate alignment with fundamentals; earlier mid-year assessment judged China’s exchange rate “in line with fundamentals” over the medium term.
- Recommended policy directions for China:
- Move to a more flexible exchange-rate system with greater weight on a currency basket rather than a strict dollar peg.
- Continue reforms to rebalance the economy toward household incomes and services.
- Allow market forces greater role in exchange-rate determination; PBOC’s increased attention to a basket is noted as appropriate.
External imbalances:
- China’s current-account surplus has fallen from historical highs (as high as 10 percent at one point) but IMF judges a remaining gap with fundamentals; rebalancing policies advised.
Strong dollar and emerging-market resilience:
- Historical vulnerability when major-currency realignments occur noted; however, many emerging-market countries now have floating regimes, larger reserve buffers, and stronger policy frameworks.
- Floating regimes have acted as shock absorbers (example countries cited: Mexico, Brazil).
- IMF role emphasized in advising and providing financial support if members face stress.

Trade architecture, regional strategies, and China’s international role

TPP and regional trade:
- Panelists anticipated the Trans-Pacific Partnership (TPP) effectively “dead” in the immediate aftermath of the U.S. election; RCEP and other regional arrangements may gain momentum or produce double-edged outcomes for regional free-trade dynamics.
China’s strategic posture:
- China described as pursuing a “connectivity-oriented grand strategy” (One Belt One Road / OBOR, AIIB) to correct perceived globalization flaws (Western dominance, “capital wins,” “state retreats”) and to emphasize development and distributional concerns.
- Recommended roles for China:
- Facilitative leadership: be an agenda setter, action enabler, consensus builder, and messenger for sustained globalization and connectivity.
- Focus on infrastructure and institutional initiatives (AIIB, OBOR) to promote development and peaceful cooperation.
- Take care of domestic reforms first (governance, debt control, sustainable growth) while being multilateral and responsive to partners’ concerns.
Security and regional management:
- South China Sea dynamics: importance of distinguishing national security from island ownership; risk that assertive actions push Southeast Asian states toward deeper American alignment; recommendation to negotiate military/hardware arrangements and resource-sharing to reduce tensions.
Multilateral cooperation imperative:
- IMF and panelists underscore the need for continued cooperation across countries to manage global risks (climate change, nuclear proliferation, refugee flows, cyber threats) and the interdependence of domestic reforms and international stability.

Policy recommendations and scenarios for governments and institutions

For China:
- Maintain growth within 6.2–6.7 percent range; target around 6.5 percent average as sustainable.
- Control credit to unproductive sectors; accelerate restructuring of unprofitable SOEs.
- Continue reform to rebalance toward household consumption, services, and better governance.
- Continue exchange-rate flexibility guided by a basket; let market forces play a larger role.
- Advance connectivity initiatives (OBOR, AIIB) and act as a facilitative global leader.
For the IMF and multilateral institutions:
- Broaden focus beyond growth to include distributional side effects of interconnectedness and non-economic threats (corruption, non-state actors, cyber).
- Support members with advice and financing where stresses arise; help design mechanisms for collective leadership in a non-hegemonic world.
For advanced economies (U.S., EU):
- Address domestic discontent from technological change and post-crisis weak growth through training, inclusion, and policies that share globalization gains.
- Europe must address internal political fragmentation and external security pressures to sustain integration.
For the U.S. (short-term considerations noted by panelists):
- Potential infrastructure and tax policy changes under a new administration could support growth if projects have high return and are well-selected.
- Trade policy uncertainty could produce sector- and region-specific tensions; full-scale tariffs across the board are assessed as unlikely by some panelists.

International Monetary Fund. Seminar Series — The Shifting Global Economic and Political Landscape: Integration or Fragmentation?, International Hotel Convention Center, Beijing, China, November 22, 2016.