IMF Executive Board Concludes 2017 Article IV Consultation with the People’s Republic of China

IMF News, August 15, 2017

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IMF Executive Board Concludes 2017 Article IV Consultation with the People’s Republic of China

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Bibliographic details

• Published: August 15, 2017

Overview

• Date: August 15, 2017.
• On July 28, 2017, the Executive Board concluded the Article IV consultation with China.
• Central finding: China continues to transition to a more sustainable growth path and reforms have advanced across a wide domain.

Growth, inflation, and domestic demand

• Real GDP growth:
  • Growth slowed to 6.7 percent in 2016 and is projected to remain 6.7 percent in 2017.
  • Staff projections beyond 2017: 6.4 (2018), 6.3 (2019), 6.0 (2020), 5.8 (2021), [table continues with projections through 2022].
• Inflation:
  • Consumer prices rose to 2 percent in 2016 and expected to remain 2 percent in 2017.
  • GDP Deflator: 3.2 (2012), 1.0 (2013), 1.1 (2014), 2.2 (2015), 2.1 (2016).
• Demand composition:
  • Total domestic demand growth: 8.1 (2012), 7.2 (2013), 7.4 (2014), 7.0 (2015), 6.8 (2016), 6.6 (2017).
  • Consumption growth: 8.7 (2012), 8.3 (2013), 8.4 (2014), 8.6 (2015), 8.0 (2016), 7.1 (2017).
  • Investment growth: 9.1 (2012), 6.1 (2013), 5.2 (2014), 5.5 (2015), 5.6 (2016).

Financial sector, credit, and debt dynamics

• Financial trends:
  • Important supervisory and regulatory action is being taken against financial sector risks.
  • Corporate debt is growing more slowly, reflecting restructuring initiatives and overcapacity reduction.
  • Credit growth remained strong in 2016; recent regulatory measures have tightened financial conditions and contributed to a declining credit impulse.
• Total social financing (growth rates and in percent of GDP shown across years):
  • Growth rates: 19.1 (2012), 17.5 (2013), 14.3 (2014), 12.4 (2015), 13.1 (2016), 11.0 (2017), 12.2 (2018), 11.4 (2019), 10.8 (2020), 9.9 (2021).
  • In percent of GDP (selected years): 169.0 (2012), 180.0 (2013), 189.8 (2014), 197.6 (2015), 209.0 (2016), 216.9 (2017), 221.6 (2018), 229.1 (2019), 235.3 (2020), 240.9 (2021), 245.5 (2022).
• Sectoral debt indicators:
  • Household debt (percent of GDP): 29.6 (2012), 35.4 (2013), 38.2 (2014), 46.3 (2015), 48.7 (2016), 51.3 (2017), 54.0 (2018), 57.1 (2019), 60.5 (2020).
  • Non-financial corporate domestic debt (percent of GDP): 105.0 (2012), 109.3 (2013), 113.0 (2014), 119.4 (2015), 128.1 (2016), 134.9 (2017), 138.5 (2018), 141.1 (2019), 142.7 (2020), 143.5 (2021), 143.3 (2022).
  • Domestic credit to the private sector (growth rates and levels presented across years): growth rates: 19.8 (2012), 16.6 (2013), 14.7 (2014), 16.7 (2015), 16.0 (2016), 12.1 (2017), 11.5 (2018), 9.6 (2019); in percent of GDP series also reported up to 205.3 (yearly progression shown in staff table).
• Interest rates and market rates:
  • 7-day repo rate (percent): 4.6 (2012), 5.4 (2013), 3.0 (2014).
  • 10 year government bond rate (percent): 3.6 (2012), 3.7 (2013), 2.9 (2014), 3.1 (2015), 3.5 (2016).
• Real effective exchange rate:
  • Depreciated 5 percent in real effective terms in 2016.
  • Renminbi has depreciated some 2¾ percent since then and remains broadly in line with fundamentals according to staff assessment.

Fiscal policy and public finances

• Fiscal stance:
  • Fiscal policy remained expansionary in 2016.
  • Directors concurred that the immediate priority for fiscal policy should be to adjust the composition of the budget to support faster rebalancing and ease transition costs from an investment- and credit-led model.
  • Having some fiscal space is desirable to allow the pace of consolidation to balance growth and sustainability concerns.
• General government (percent of GDP, selected series):
  • Net lending/borrowing: -0.3 (2012), -0.8 (2013), -0.9 (2014), -2.8 (2015), -3.7 (2016), -3.9 (2017), projections continuing to -4.2 (2022).
  • Revenue: 27.8 (2012), 27.7 (2013), 28.1 (2014), 28.5 (2015), 28.2 (2016), 27.4 (2017), 27.3 (2018), 27.2 (2019), 26.9 (2020), 26.8 (2021), 26.7 (2022).
  • Expenditure: 29.0 (2012), 31.9 (2013), 31.1 (2014), 30.9 (2015), 30.8 (2016).
  • Official government debt (narrow definition): 15.5 (2012), 38.6 (2013), 36.4 (2014), 36.6 (2015), 37.5 (2016), 38.4 (2017), 39.3 (2018), 40.2 (2019), 41.2 (2020), 42.2 (2021).
• Augmented fiscal metrics (including local government financing vehicles and off-budget activity):
  • Augmented debt (percent of GDP): 44.1 (2012), 48.1 (2013), 52.3 (2014), 58.2 (2015), 68.1 (2016), 73.2 (2017), 78.1 (2018), 83.1 (2019), 87.6 (2020), 91.5 (2021).
  • Augmented net lending/borrowing (percent of GDP): -5.1 (2012), -7.6 (2013), -7.2 (2014), -8.4 (2015), -10.4 (2016), -10.6 (2017), -10.8 (2018), -11.1 (2019), -11.2 (2020), -11.0 (2021), -10.7 (2022).
  • Augmented fiscal balance (percent of GDP) series also presented in staff table.

External sector and capital flows

• Current account:
  • Current account surplus fell to 1.7 percent of GDP in 2016.
  • Projected to narrow to 1.4 percent of GDP in 2017, driven primarily by robust domestic demand and a deterioration in terms of trade.
  • Historical/current account data: 1.5 (2012), 2.7 (2013), 1.7 (2014), 1.3 (2015), 1.2 (2016), 0.9 (2017), 0.7 (2018).
• Trade and services balances (selected figures):
  • Trade balance: 4.1 (2012), 4.4 (2013), 3.9 (2014), 3.4 (2015), [2016 value shown in table].
  • Services balance: -1.3 (2012), -2.0 (2013), -1.9 (2014), -2.2 (2015), -2.3 (2016), -2.4 (2017).
• Capital flows and reserves:
  • Capital outflows have moderated amid tighter enforcement of capital flow management measures and more stable exchange rate expectations.
  • Gross official reserves (bn US$): 3,388 (2012), 3,880 (2013), 3,899 (2014), 3,406 (2015), 3,098 (2016), 2,934 (2017), with projected path through 2,714 (2022).

Executive Board assessment and policy recommendations

• Reforms and rebalancing:
  • Directors commended progress in rebalancing toward services and consumption and urged acceleration of reforms to focus on quality and sustainability of growth.
  • Recommended reducing national savings to help prevent domestic and external imbalances, emphasizing greater social spending and a more progressive tax system.
• State-owned enterprises and investment climate:
  • Welcomed improvements in SOE performance; urged further reforms including hardening budget constraints, accelerating restructuring of underperforming debt, and allowing exit of non-viable firms.
  • Highlighted importance of improving investment climate: reduce barriers to entry, ensure a level playing field, and reduce trade barriers.
• Overcapacity and market forces:
  • Welcomed authorities’ efforts to reduce overcapacity and urged broadening such efforts with greater reliance on market forces.
• Financial stability and regulation:
  • Commended increased focus on reducing financial stability risks; urged continued strengthening of regulatory and supervisory efforts.
  • Looked forward to findings and recommendations of the ongoing Financial Sector Assessment Program.
• Monetary policy:
  • Directors supported a gradual tightening of monetary policy if core inflation continues to pick up.
  • Called for completing the transition to a modern price-based monetary policy framework.
• Exchange rate, capital account, and statistics:
  • Staff assessment: renminbi remains broadly in line with fundamentals, though the external position in 2016 was moderately stronger than implied by fundamentals.
  • Stressed importance of greater exchange rate flexibility and deeper reliance on market forces to determine the exchange rate.
  • Noted recent steps to tighten enforcement of capital flow measures were broadly consistent with the Fund’s Institutional View, while emphasizing the need for consistent and transparent implementation and careful sequencing of reforms to support capital account liberalization.
  • Encouraged continued improvement in coverage and quality of officially provided statistics to inform policymaking and investment decisions.
• Fiscal framework reforms:
  • Supported improving the fiscal framework to increase local government autonomy, reduce scope for off-budget spending, and centralize some expenditure responsibilities.
  • Underscored importance of monitoring debt and further efforts to reform central-local fiscal relations to reduce risks from off-budget spending.

Key headline statistics (selected)

• Real GDP growth: 6.7 percent (2016), projected 6.7 percent (2017).
• Consumer inflation: 2 percent (2016), expected 2 percent (2017).
• Current account surplus: 1.7 percent of GDP (2016), projected 1.4 percent of GDP (2017).
• Renminbi real effective depreciation: 5 percent (2016); additional depreciation since then: 2¾ percent.
• Gross official reserves: 3,098 bn US$ (2016), 2,934 bn US$ (2017).
• Official government debt (narrow): 37.5 percent of GDP (2016).
• Augmented debt: 68.1 percent of GDP (2016).

IMF Executive Board Concludes 2017 Article IV Consultation with the People’s Republic of China — Press Release No. 17/326 (August 15, 2017).

Content in this bundle

• PEOPLE'S REPUBLIC OF CHINA — STAFF REPORT (cr17247)
  • PEOPLE'S REPUBLIC OF CHINA — STAFF REPORT (cr17247) (Markdown version)
  • PEOPLE'S REPUBLIC OF CHINA — STAFF REPORT (cr17247) (PDF)
• CHINA’S HIGH SAVINGS: DRIVERS, PROSPECTS, AND POLICIES
  • CHINA’S HIGH SAVINGS: DRIVERS, PROSPECTS, AND POLICIES (Markdown version)
  • CHINA’S HIGH SAVINGS: DRIVERS, PROSPECTS, AND POLICIES (PDF)

References

• The Executive Board
• https://www.imf.org/en/countries/infographics/china/2017/article-iv
• China's Economic Outlook in Six Charts
• People's Republic of China and the IMF
• IMF Policy Advice -- A Factsheet
• Press Releases
• PRESS CENTER
• http://www.imf.org/external/np/sec/misc/qualifiers.htm
• https://www.imf.org/en/home