China's Economic Outlook in Six Charts
IMF News, August 9, 2019
Source details
- Canonical URL
- China's Economic Outlook in Six Charts
Other formats
Bibliographic details
- Published: August 9, 2019
Overview
- China’s economic growth is moderating and is projected to be 6.2 percent in 2019.
- In its latest annual assessment of China’s economy, the IMF found the quality of growth had improved in three ways in 2018:
- The pace of debt accumulation had slowed.
- The financial system is better regulated and supervised.
- The current account surplus is no longer excessive.
- Trade tensions cloud the outlook, and reforms need to deepen if this progress is to be continued.
Key findings and recent developments
- After slowing last year, debt accumulation accelerated in the first quarter of 2019.
- China made progress in reducing external imbalances over several years, and its exchange rate in 2018 was broadly in line with fundamentals.
- Households in China spend less on consumption than those in other similar income-level countries, reflecting distortions that encourage excessive household savings.
Risks and near-term outlook
- Trade tensions, including higher U.S. tariffs on Chinese goods, pose a negative impact to the economy.
- Avoiding further broad stimulus would help check the pace of debt accumulation, but some modest fiscal stimulus would be appropriate to offset tariff-related impacts.
Policy recommendations
- Fiscal and macro policy
- Avoid further stimulus measures that would accelerate debt accumulation.
- Consider some modest fiscal stimulus to offset the negative impact of higher U.S. tariffs on Chinese goods.
- Structural opening and competition
- Accelerate opening up: China remains less open than other G20 emerging market economies in services and foreign direct investment.
- An agreement with the United States could support the global trading system and encourage further opening of China’s trade and foreign investment regime and other structural reforms that enhance competition.
- External lending framework
- Strengthen external lending framework for China’s lending outside the country (such as through the Belt and Road Initiative) by promoting greater coordination, cooperation, and transparency.
- Direct financing to much-needed infrastructure projects, strengthen bilateral trade, and deepen global value chains.
- External balance and consumption
- Take measures to help ensure the current account surplus remains in check by addressing distortions that encourage excessive household savings and by further boosting consumption to increase welfare.
- Financial sector and debt vulnerabilities
- Stay the course on implementing planned financial regulatory reforms.
- Raise capital in smaller banks and control the rapid growth of household debt.
- Tighten the debt-service-to-income limit (currently 55 percent) to international norms of 30–50 percent, apply it to all debt obligations including those from nonbanks, and use it more actively to enhance the effectiveness of loan-to-value limits (for example, by restricting the use of unsecured loans for mortgage down payments).
- Market role and state-owned enterprises
- Increase the role of the market by opening up more sectors to private and foreign competition and reducing the share of credit going to state-owned enterprises.
- Remove implicit guarantees and harden the budget constraints for state-owned enterprises to improve credit allocation and limit their advantage in accessing credit.
Key statistics and dates
- Projected growth: 6.2 percent in 2019
- Improvements identified in: 2018
- Debt accumulation accelerated: first quarter of 2019
- Debt-service-to-income limit: currently 55 percent
- Proposed international norms for debt-service-to-income limit: 30–50 percent
China's Economic Outlook in Six Charts, August 9, 2019.