Advancing China’s Sustainable Economic Growth
IMF News, March 24, 2024
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- Published: March 24, 2024
The global economy
- The year ahead will require careful calibration of monetary and fiscal policies to secure a soft landing — bringing inflation down while maintaining growth firmly in positive territory.
- Central banks must decide when to cut interest rates and by how much, based on data, because the pace of disinflation and growth are diverging across countries.
- Fiscal authorities need to embrace consolidation to reduce debt and rebuild buffers, while financing digital and green transformations.
- The global economy has proven remarkably resilient due to strong macroeconomic fundamentals, robust consumer and government spending, held-up labor markets, and normalized supply chains.
- Projections and medium-term outlook:
- “We project over 3 percent growth this year and next.”
- “Looking to the medium term, we expect global growth to be around 3 percent.”
- Pre-COVID decade annual average: “3.8 percent.”
- Structural challenges: low productivity growth, high debt levels (especially for emerging and developing economies), and geopolitical tensions affecting trade and capital flows.
- Opportunities: digital and green transformations can boost productivity growth and living standards; deep structural reforms can enhance entrepreneurship, innovation, and economic performance.
- Regional note: In Asia inflation rose less and is coming down faster, so interest rates have not risen as much.
China — a new era of high-quality growth
- Recent performance:
- China saw a “strong post-Covid rebound in 2023, with growth exceeding five percent.”
- Medium-term role:
- China will continue to be a key contributor to global economic growth despite headwinds from low productivity growth and an aging population.
- Reform potential and quantitative scenario:
- “With a comprehensive package of pro-market reforms, China could grow considerably faster than a status quo scenario.”
- That additional growth would amount to “a 20 percent expansion of the real economy over the next 15 years—in today’s terms, that is like adding US$ 3.5 trillion to the Chinese economy.”
- Core ingredients for high-quality growth:
- Maintain sound macroeconomic fundamentals and strong institutions.
- Address near-term challenges: transition the property sector to a more sustainable footing and reduce local government debt risks.
- Reduce the stock of unfinished housing and give more space for market-based corrections in the property sector to accelerate solutions and lift consumer and investor confidence.
- Shift toward higher reliance on domestic consumption by boosting household spending power.
- Strengthen the social security system’s reach and increase benefits—“think of strengthening the pension system in a fiscally responsible way.”
- Improve allocation of capital via a stronger business environment and a level playing field between private and state-owned enterprises.
- Invest in human capital: education, life-long training, reskilling, and quality health care to raise labor productivity and incomes.
- AI and technology:
- AI preparedness is immediate: four critical areas are digital infrastructure, human capital and labor markets, innovation, and regulation and ethics.
- IMF analysis finds China “at the forefront of emerging economies in terms of AI preparedness,” with well-developed digital infrastructure providing a head start.
- Recommended actions: establish a robust AI regulatory framework and strengthen economic ties with other innovative countries.
- Green transition:
- China is the global leader in deploying renewable energy and is making rapid progress in green mobility.
- Policy steps to improve decarbonization efficiency: sell a greater share of electricity at market prices and extend emissions trading system coverage to the industrial sector.
Policy recommendations and reforms
- Macroeconomic and fiscal:
- Preserve sound macroeconomic fundamentals and rebuild policy buffers while pursuing consolidation.
- Tackle local government debt risks and property sector imbalances decisively.
- Structural and market reforms:
- Implement comprehensive pro-market reforms to lift productivity and growth (see 20 percent/US$ 3.5 trillion scenario).
- Strengthen the business environment and ensure a level playing field between private and state-owned enterprises.
- Human capital and social protection:
- Expand social security reach and increase benefits where fiscally responsible, including pension reforms.
- Scale up investments in education, life-long training, reskilling, and quality health care.
- Technology and innovation:
- Build on digital infrastructure strengths, adopt robust AI regulation and ethics frameworks, and deepen ties with other innovative countries.
- Climate and green policies:
- Advance market pricing of electricity and extend emissions trading system coverage to industry to improve decarbonization efficiency.
International cooperation and the IMF’s role
- Cooperation is essential to address shared challenges—fragmentation, climate change, and debt—which disproportionately affect the most vulnerable.
- China’s contributions and engagement:
- China has strengthened the IMF’s financial capacity through contributions to concessional lending instruments for low-income countries, the Resilience and Sustainability Facility, and capacity development initiatives.
- China helped forge the agreement to increase the IMF’s permanent resources by “50 percent.”
- China plays an important role in addressing debt distress in emerging and developing economies; further creditor work is needed to speed up debt relief and China’s continued strong engagement is welcomed.
- The IMF commits to being a partner to China through ongoing policy dialogue and mutual learning.
Key statistics and figures (as stated)
- “Over 3 percent growth this year and next.”
- Medium-term global growth expectation: “around 3 percent.”
- Pre-COVID decade annual average global growth: “3.8 percent.”
- China 2023 growth: “exceeding five percent.”
- Pro-market reform scenario for China: “a 20 percent expansion of the real economy over the next 15 years” = “US$ 3.5 trillion.”
- IMF permanent resources increase: “50 percent.”
Remarks by the Managing Director Kristalina Georgieva at the China Development Forum, March 24, 2024, Beijing.