Transcript of Press Briefing on the 2022 China Article IV Staff Report

February 2, 2023




Senior Press Officer, Communications Department, IMF



Deputy Director, Asia and Pacific Department, IMF


Mission Chief for China, Asia and Pacific Department, IMF


Deputy Mission Chief for China, Asia and Pacific Department, IMF

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MS. YAN: I think we should get started. So, good evening, everyone. And good morning, to those who are joining us from Asia. I know many of you are doing this early morning in Asia. Thank you so much for joining this press conference on the IMF’s 2022 China Article IV Staff Report. My name is Ting Yan, and I am from the Communications Department. It’s great to see many of the friends here. And although virtually, we will hopefully be able to see you soon in person. Earlier today, we have posted under embargo the staff report, as well as the press release, country focus article, and opening remarks. Today, I am glad to have three speakers from the Asia and Pacific Department. Let me first introduce them. We have Thomas Helbling, he is the Deputy Director of the Asia and Pacific Department. And we have Sonali Jain-Chandra, she is the China Mission Chief for the IMF. And we also have Joong Shik Kang, Deputy China Mission Chief. So with that, I think for today, Thomas will start with opening remarks, and then we will be happy to take your questions. I just want to remind everyone that all the documents that you have seen earlier today, as well as this press briefing, will be under embargo until 4 a.m. Washington DC time, tomorrow, which will be 5 p.m. Beijing time, Friday. Just a reminder. And with that, Thomas, the floor is yours.

MR. HELBLING: Thank you, Ting. And with that, good evening, and good morning, to all participants. Thank you for joining this press briefing. I would like to start my opening remarks with our latest forecast for China. Specifically, and as a background, we have revised our growth and other forecasts for the January 2023 World Economic Outlook Update, which as you know, was published earlier this week. The revisions are based on data that we have received after submitting our documents to our executive board for its meeting on the Article IV consultation. The meeting itself took place on January 12 of this year. So, quite a while ago, given the fluidity of the developments in China. For this reason, the updated forecast is not included in the documents that will be released later today in Asia, and later this morning in the United States. So, please keep this in mind. I will come back to that, of what this means for our documents. Turning to the figures though, we now project growth to increase from 3% in 2022, to 5.2% in 2023, driven by a rebound in private consumption amid the earlier-than-anticipated opening in China. This growth forecast is subject to a considerable degree of uncertainty, including due to the potential evolution of the virus. Downside risks include potential economic disruptions from the current or future waves of COVID infections, and also a sharper-than-expected slowdown in the property sector. The reopening could also lead to stronger-than-expected inflationary pressures in China. Finally, I should note that there are also upside risks to growth. There is a possibility that there could be an even stronger recovery in private consumption and investment than we anticipate in our baseline forecast. Amid the still-negative outlook in 2023 in China, and the prevalent downside risks, it will be important for the Chinese authorities to avoid the premature tightening of macroeconomic policies. This risk arises as the support provided in 2022 will expire. In particular, we would recommend a neutral fiscal stance, with the composition of spending shifting towards households, which would support the recovery. Additional monetary policy accommodation would also help to secure the recovery, given slack and muted inflationary pressures. Beyond the near-term outlook, the analysis and major policy recommendations in our staff report remain relevant. Let me just highlight a few. On the real estate sectors, authority’s recent policy measures are welcome, but in our review, additional action will be needed to end the real estate crisis, including further funding for the completion of troubled projects, and to promote market-based restructuring in the sector. Then structural reforms should be accelerated to lift potential growth, given headwinds from demographic trends, and slowing productivity growth recently. Pro-growth reform, such as reopening up of domestic markets, and ensuring competitive neutrality between private firms and state-owned enterprises would help to shore up low productivity growth at the time of a shrinking labor force. I believe as Ting mentioned, you have a full copy of the opening remarks as prepared for delivery on the protected website. Let me stop here. Thank you. Back to you, Ting.

MS. YAN: Thank you very much, Thomas. So now we are open for your questions. I texted in the chat box that if you want to ask questions, please use the “raise hand” function in WebEx. We have previously received some questions in advance. I got a couple of questions from Joe Cash, Reuters, and also CK Tan, from Nikkei Asia. Joe, are you online? Do you want to raise your questions? If not, CK Tan, if you want to raise your questions, you can go ahead and unmute yourself.

QUESTIONER: Can you hear me?

MS. YAN: Yes, we can hear you clearly. Go ahead.

QUESTIONER: Thank you for taking my question. My first question is about the China property sector. The government has extended quite a lot of support to this sector. But as we can see so far, the price has not really come down, and it is still unaffordable to many people in China. So, how do you perceive the property sector will play out this year?

MS. YAN: Do you have another question that you want to ask?

MS. JAIN-CHANDRA: If you please, I’m sorry for interrupting. I couldn’t hear the question very well, I know it’s something with property sector, I just couldn’t hear. I don’t know if it’s just me.

MS. YAN: There was some background noise, but the question is about the property sector.

QUESTIONER: Give me a second, sorry.

MS. YAN: CK, can you ask your question now, or we can come back to you later?

QUESTIONER: I will repeat my question again on the property sector. As we have seen, China’s government has a standard set of policies to stop the property sector slowdown. But so far, as we can see for the past two years, housing prices haven’t really come down, and it is still unaffordable to many people here. How do you see the property sector will play out in 2023?

MS. YAN: Thank you, CK. Does anyone else have a question related to the property sector? If not, maybe we can answer this first, while we wait for other questions.

MS. JAIN-CHANDRA: Sure. Thank you, Ting. And good evening and good morning to the participants on this call. Regarding the prospects for the property sector in 2023, I wanted to explain how we see the outlook. We see a moderating slowdown in real estate investment, and also stabilizing real estate sales in 2023, on the back of measures taken by authorities, as was just mentioned. And in addition to the welcome measures that were taken by the authorities, our report for the 2022 Article IV provides additional recommendations to end the property market downturn, and limit risks to the macroeconomy and financial system. In particular, we highlight in the report that efforts are needed to pave the way for market-based restructuring, as Mr. Helbling said. Also, we recommend undertaking structural reforms to facilitate the transformation of the sector to a sustainable size over the medium term, including reforms to reduce precautionary savings of households, develop alternative savings vehicles for them, including third pillar pensions. All of this will reduce the investment demand for property. We have also recommended for the long-term instituting a property tax. So, these medium-term measures would also help. Regarding the observation on property prices, yes, there has been very limited downward pressure on property prices. We understand that there are property price laws that are in place as well. Thank you.

MS. YAN: Thank you, Sonali. Do we have more questions? Joe, go ahead. I know you had some technical issues.

QUESTIONER: Thank you, everybody, and thanks, Ting. Question for Reuters. We would be interested to know your opinion on how China would likely drive economic recovery this year, whether that will be through issuing consumption vouchers, as leaders have promised, or whether they will take some other steps, and how that could impact global inflation pressures. Thank you.

MR. HELBLING: Let me take this question. Thank you. On consumption vouchers, I think the authorities have announced measures to strengthen growth. Details have not been announced, and as we have highlighted, we have recommended that policies should support shift towards households, which have suffered considerably during the pandemic, which will still face uncertainty in the initial phase of the reopening, or even during the wave that has just come through next. So, our revisions to the forecast are clearly consumption-driven. And so, the question is, what are the implications for inflation globally? I think the backdrop to this is that in China, inflation is still relatively low. We see an economic recovery for an economy that is still operating below potential. We also think, and what we have seen elsewhere, is that consumption recovery will importantly lead to a rebound in contact-intensive services, which have been lagging behind in China’s economic growth over the past two to three years, so there will be a rebound. While there is a risk, perhaps, of sectoral imbalances developing, a risk that we have also seen materializing elsewhere, it is not in our baseline. Unemployment has increased. We see that the economy is able to absorb this additional demand. In particular, also, against a backdrop of a global economy, where some of the international supply constraints have eased. Nevertheless, there are some upside risks to inflation. The global impact on inflation should be limited. Again, let me point to supply bottlenecks. While there could be some impact on global commodity prices, we see this more as a risk at the moment. And as our economic counselor, Pierre Olivier Gourinchas mentioned in the release of the update on balance, the rebound in China will be a net positive for the economy. The growth effect should dominate. There is likely to be a limited, if any, impact on inflation. And as far as commodity prices, including and especially energy prices, which will probably be most affected by the rebound in consumption, they have so far been declining since earlier this year, and are lower in our year projections, compared to our earlier projections. So, there is a decline in prices this year. So, we would see more upside, probably limited upside to risk inflation from the earlier-than-expected reopening in China. Thank you.

MS. YAN: Thank you, Thomas. I see a few hands here. Let me take them.

QUESTIONER: Thank you, Ting. I think part of my question has been covered, but maybe you can also talk about the prospects of investment, and how resilient are we expecting China’s investment to be this year, and what are the key policy suggestions for China to boost investment -- thank you.

MS. YAN: Thank you, Qingting. Let me also take Liu Yang from Global Times. Liu, please go ahead.

QUESTIONER: Hello, here is reporter from Global Times, and I want to ask about how much will China's GDP gross will be contributed to the world economy this year? Thanks.

MS. YAN: Thanks, Liu Yang. Thomas, Sonali, want to take the questions?

MS. JAIN-CHANDRA: I can take the first one, and perhaps Thomas the second one. In terms of how we see the contribution of investment this year, our projections as Thomas said are for the rebound to be driven by private consumption, so we're projecting 5.2 percent for 2023, of this the contribution of private consumption is about half, and about a percentage point each for private and public consumption.

So, again, the story for this year in our projections is that it's going to be private consumption-driven, and the reason is that private consumption has been very weak during the pandemic in China, in particular in 2022, where we saw in the fourth quarter, rural consumption actually contracted. So, given the low base, given the fact that people will now be able to resume normal activity, mobility is now normalizing. We see an increase in private consumption, and also in terms of prospects for investment, we see some pickup in private investment as, you know, households start consuming funds that benefit from this rebound in private consumption, will also start investing again, and also as uncertainty dispels.

As Thomas said, in terms of the specific fiscal policy support, we will know more about this in the next few months. At this point, we're assuming that infrastructure investment growth will be relatively neutered compared to consumption growth, which will drive the recovery. Thank you.

MR. HELBLING: On the global implications, so, we estimate that the 5.2 percent growth in China contributed one fourth of global growth this year. The impact on growth elsewhere is clearly positive. In our latest regional economic outlook in October, we provided a very rough estimate of an average spillover, so a 1-percentage-point increase in growth in China leads on average to an increase of about 0.3 percent in the medium term.

Now, looking at the spillovers in the near term in 2023, we should point out the rebound is consumption-driven, that is we were different from earlier rebounds after growth downturns in China, which were more investment driven. And as mentioned earlier, we think that importantly the rebound will be driven by the rebound in services, especially contact-intensive services, including travel and tourism, domestically and internationally. So, what we would expect is that the spillovers in the near-term will be particularly strong, where there's strong trade linkages in tourism. So, in many of the Asian neighbors, including, say, Thailand or The Philippines, and then of course the larger these linkages, the bigger will be the impact.

And then more generally, looking at the implications again on the import side on China, we again see a stronger increase in imports of services rather than goods, which is also another reason why we expect the relatively muted effect on global inflation. Thank you.

MS. YAN: Thank you Thomas and Sonali. I see two -- three more hands here. Zhiwei Li from People's Daily, you want to go first?

QUESTIONER: Hello, I have two questions. I still want to ask the question about the contribution of Chinese economy growth to the world. I have seen the IMF report, and China contributes the largest share of global economic growth this year. Chinese consumers spent more than expected during the recent spring festival. The Chinese cities return to their daily life, and the people are flocking to the cinemas and the tourist attractions. In your opinion, if the Chinese economy maintains this momentum, what benefits will it bring to the global economy, what's the impact to the other region and the area? The second question is about the resilience of the Chinese economy. The latest data from China's National Bureau of Statistic shows the manufacturing PMI reading of 50.1 percent in January. So, how do we see the resilience of Chinese economy and manufacturing? Thank you.

MS. YAN: Thank you, let me take another one from Donghui.

QUESTIONER: Thank you, can you hear me?

MS. YAN: Yes, we can hear you clearly.

QUESTIONER: Okay, yeah. Thank you. How would you evaluate the impact of the geostrategic risk on Chinese economy this year, such as the continuing Russia-Ukraine War and severing U.S. high tech and supply chain decoupling from China? Thank you.

MS. YAN: Thank you, Donghui. I see Qingting you have another hand, is it a follow-up question?

QUESTIONER: Yeah, my follow-up question is about the U.S. export control pact, and how do you see this pact impact on China's chip industry and the global semiconductor supply chain? Thanks.

MS. YAN: Thank you.

MR. HELBLING: Let me perhaps take the question on global growth, and then the impact of the recent restrictions on chip-related exports to China, then I will pass on to Sonali on the question on resilience. So, on the global impact, you know, the short answer is it's clearly a positive, you know, we see that the rebound in China accounts for one fourth of global growth. The rebounding consumption has perhaps smaller impact on the global economy than rebounds that were driven by other factors. But nevertheless, they're positive, and they are different.

As mentioned earlier, we think in the near-term, sectors such as tourism and travel abroad will benefit the most. And as you know, these are sectors which are still operating well below capacity in many countries, including in neighboring Asian economies. So, prospects for considerable increase in tourism from China to these countries will be welcome and will help, and to the extent that the sector is -- has so far been operating well below capacity, you know, this should also help in containing the price effect.

Over time, the strong rebound and -- will have brought a positive economic impact on China, Sonali already mentioned the impact on investment, and that too then eventually will feed into positive spillovers for the global economy. On the recent U.S. export controls on advanced chips.

On the near-term effect I would say the following, this is a sectoral shock, in the short-term primarily, although the sector of course has complex linkages throughout the economy. We have not yet analyzed the impact. But just from a macro perspective, we will not expect material adverse effect in the short-term on the rebound, which is a macro development, the change in macro parameters.

So, that's it, I think, we look at these export restrictions more broadly in context of recent fund analysis, right, these restrictions have potentially substantial costs, and the Fund has -- the IMF has voiced its concern about -- in prospects of increasing geo-economic fragmentation, and if you look at the regional economic outlook again of October 20202, which looked at technological decoupling, there were scenarios in which the income or GDP losses were considerable depending on the scenario. And given these risks, we have emphasized that the major economies should work together to address these challenges from geo-economic fragmentations, and find solutions, and the (inaudible), you know, further run away fragmentation. And further analysis will need to look at the specific impact on the restrictions on semiconductors, which will -- over time could have profound implication in the form of technological decoupling and fragmentation of supply chains. Thank you.

MS. YAN: Joong Shik, do you want to answer or add more?

MR. KANG: Yes. I think there was a question about the economy resilience, so let me answer to that question. So, maybe for the full assessment of our economic resilience, we have to wait until mid-March, when the combined economic data, comprehensive data for January and February, will be released. However, a few high-frequency indicators allow us to make some preliminary assessment.

First, as you mentioned, the January PMI data, which was released earlier this week, suggests a very broad improvement in domestic demand, especially with a very strong recovery in service activities, particularly contact-intensive tourist activities. But at the same time, the PMI data also indicate that the external demand for manufacturing sector still remain a bit weaker compared to service sector.

Second, as you also mentioned, the holiday tourism and travel data during this Lunar New Year holiday about a week ago also point to a very slow recovery in hospitality sector in China as expected. In addition, other various indicators also show that domestic mobility have all returned to their pre-pandemic level by the end of January, as Sonali mentioned a few minutes ago. So, when I combine all these kind of high-frequency indicators, we can now see that economic activity in China is normalizing quite quickly early this year, and we expect that China's economic recovery will be likely to be very frontloading this year. Thank you.

MS. YAN: Thank you, Joong Shik. Next, Yujing Liu from Bloomberg. Yujing, please go ahead and unmute yourself. Yujing, are you -- can you unmute yourself? Okay. So, she might be having technical issues. While we wait for her, Qingting you have another follow-up, go ahead.

QUESTIONER: Yeah, could you also share your thoughts on the proposed IPO overhaul, and how do you see the implications of this IPO overhaul on China's capital market reform and economic reform? Thank you.

MR. KANG: Yeah, let me respond to that question. Yeah, so, let me first mention that we are still waiting for the additional full details about the reform package. However, I can say that China has expanded its pilot of this registration-based IPO over the last few years, and the recently proposed reform, which was reported in the media in this IPO system, is a very welcome step from our perspective, because we expect that we will promote more market-based resource allocation in China. But we are still waiting for additional details for a more fuller assessment in due course. Thanks.

MS. YAN: Thank you. Anyone else have a question? Yujing, you can send up questions to me. Okay, so, Yujing Liu from Bloomberg Beijing, her question is what's your recommendation for China's monetary policy this year, will interest rate cuts be needed?

MS. JAIN-CHANDRA. I can take that one. So, our recommendation in the report for China's monetary policy is that additional monetary easing will be needed this year, and the backdrop to that is that we see very, very muted core inflation pressure. We also see an economy operating well below potential. And so, given that, we think that maintaining accommodative monetary policy at this stage will help the balance sheet repair and support the recovery, and, you know, with regards to financial stability concerns, we think that prudential measures should be deployed as needed. Thank you.

MS. YAN: Thank you. Do we have more questions online? Please raise your hands if you have any questions. Okay, I don't see any hands here. Anything else, Thomas, Sonali, Joong Shik, you want to add? If we don't have anymore questions, then I think we can wrap up our press conference here. Thank you so much everyone for joining this, I know from the U.S. in the evening and early morning in Asia. Let me remind you again that we have already posted all the documents of the Article IV on on the press center. So, I would highly recommend you read our staff report, and the opening remarks, and we also have a country focus article. And everything will be embargoed, including this press meeting until 5 p.m. Beijing time, 4 a.m. tomorrow D.C. time. Thank you so much. Have a great day.

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