China's Economic Outlook in Six Charts
IMF News, August 15, 2017
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- Published: August 15, 2017
Growth outlook and momentum
- China continues to enjoy strong growth—projected at 6.7 percent for 2017.
- IMF staff have revised up China’s growth outlook compared to last year’s report: growth between 2017 and 2021 for the world’s second largest economy is now expected to average 6.4 percent, compared to 6.0 percent last year.
- The country has potential to sustain strong growth over the medium term, but doing so safely requires speeding up reforms to make growth less reliant on debt and investment.
Debt dynamics and risks
- Total non-financial sector debt—which includes household, corporate and government debt—is expected to continue to rise strongly, reaching almost 300 percent of GDP by 2022, up from 242 percent in 2016.
- Rising debt leads to increasing risks, including the possibility of a sharp decline in growth in the medium term.
Deleveraging and financial policy priorities
- Given strong growth momentum, now is the time to intensify deleveraging efforts.
- The Chinese government has started to take important initial steps to facilitate private sector deleveraging: credit growth is slowing and the large “credit gap” is narrowing.
- Overarching priority for policy: focus more on the quality and sustainability of growth, and less on quantitative targets.
Rebalancing toward consumption and fiscal policy
- At 46 percent of GDP, China’s national savings are 26 percentage points higher than the global average, largely due to the household sector; consumption is correspondingly low.
- Low consumption:
- Reduces the current welfare of Chinese citizens.
- Fosters high levels of investment that are unlikely to be absorbed efficiently.
- If investment were to fall, would lead to even larger current account surpluses, worsening global imbalances.
- Policy options to boost consumption:
- Increase government spending on health and pensions to raise government consumption and reduce household precautionary saving.
- Increase the progressivity of the tax system to finance higher social spending and reduce income inequality (noted as among the highest in the world).
Productivity, resource allocation, and structural reform
- China needs to increase productivity by reallocating resources away from loss-making (“zombie”) companies, overcapacity industries, and State-Owned Enterprises (SOEs).
- The IMF estimates that such efforts could increase the contribution of productivity to growth by about 1 percentage point over the long term.
Source: China's Economic Outlook in Six Charts, August 15, 2017.