(As prepared for delivery)
Distinguished guests, Ladies and gentlemen— zao shang hao!
I would like to thank our hosts for inviting me to contribute to the discussion on China’s continuous development, at the start of what is shaping up to be a consequential Year of the Dragon, for the world economy and for China.
The global economy
For the world, 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. Many central banks have the difficult task of deciding when to cut interest rates and by how much, based on data. They can no longer take cues from others as both the pace of disinflation and growth are diverging across countries.
It will be also a challenging year for fiscal authorities in most countries — they need to embrace consolidation to reduce debt and rebuild buffers, and at the same time finance the digital and green transformations of their economies.
Fortunately, the global economy has proven to be remarkably resilient to the shocks of the last years. This resilience is mostly due to strong macroeconomic fundamentals in most of the advanced and emerging market economies and robust consumer and government spending. Labor markets have held up and supply chains have normalized.
Therefore, despite the higher global interest rates, we project over 3 percent growth this year and next. While inflation remains above target in many countries, we see it continuing to fall. The picture here in Asia is more nuanced, because inflation did not rise as much as elsewhere, and it is coming down faster. As a result, interest rates have not risen as much.
But looking to the medium term, we expect global growth to be around 3 percent, which is weak by historical standards – during the pre-COVID decade the annual average was 3.8 percent. Low productivity growth and high debt levels are posing challenges to all, but especially to emerging and developing economies. And geopolitical tensions affect trade and capital flows, which have been essential engines of growth over the last decades.
The good news is that the digital and green transformations present opportunities to boost productivity growth and improve living standards. Deep structural reforms can enhance the conditions for entrepreneurship, innovation and economic performance.
China – a new era of high-quality growth
Zooming in on China, we saw a strong post-Covid rebound in 2023, with growth exceeding five percent.
In the medium-term, China will continue to be a key contributor to global economic growth. While low productivity growth and an aging population are factors affecting growth, there are also tremendous opportunities.
China is poised to face a fork in the road — rely on the policies that have worked in the past, or update its policies for a new era of high-quality growth.
According to our analysis, with a comprehensive package of pro-market reforms, China could grow considerably faster than a status quo scenario. This 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.
What are the ingredients of such a package of reforms?
It all starts with sound macroeconomic fundamentals. I was very encouraged to hear the commitment to sound fundamentals and strong institutions here in China. Decades of impressive growth in China have significantly improved living standards and provided ample policy buffers to address its most-pressing near-term challenges. These include transitioning the property sector to a more sustainable footing and reducing local government debt risks. Tackling these challenges is essential for a smooth transition to a new era of high-quality growth. Our analysis shows that decisive steps to reduce the stock of unfinished housing and giving more space for market based corrections in the property sector could both accelerate the solution to the current property sector problems and lift up consumer and investor confidence.
A key feature of high-quality growth will need to be higher reliance on domestic consumption. Doing so depends on boosting the spending power of individuals and families. China’s social security system covers more people than any other on the planet. But there is room to expand its reach further and increase benefits—think of strengthening the pension system in a fiscally responsible way.
Domestic consumption also depends on income growth, which in turn relies on the productivity of capital and labor. Reforms such as strengthening the business environment and ensuring a level playing field between private and state-owned enterprises will improve the allocation of capital. Investments in human capital — in education, life-long training and reskilling – and quality health care will deliver higher labor productivity and higher incomes.
This is particularly important as China seeks to seize the opportunities of the AI “big bang.” Countries’ preparedness for the world of artificial intelligence is no longer a goal for the future — it is already an issue for today. The IMF has identified four areas that are critical for countries’ AI preparedness — digital infrastructure, human capital and labor markets, innovation, and regulation and ethics. Our analysis finds that China is at the forefront of emerging economies in terms of AI preparedness, with well-developed digital infrastructure providing a head start. Establishing a robust AI regulatory framework and strengthening economic ties with other innovative countries will help China power ahead.
Similarly, China has enormous potential in advancing the green economy. It is already the global leader in deploying renewable energy, and is making rapid progress in green mobility. Its continued leadership is vital to addressing the global climate crisis. Building on progress in recent years to sell a greater share of electricity at market prices would make China’s decarbonization even more efficient. So, too, would extending the coverage of the emissions trading system to the industrial sector.
The transformation ahead is not easy. China’s remarkable development success has delivered tremendous benefits to hundreds of millions of people. The younger generations, who have lived their whole lives in an environment of exceptionally high growth rates, are experiencing what many countries have experienced before as economies mature and growth moderates.
But this transition from high rates to high quality of growth is the right fork in the road to take and China is determined to do so. As the government recognizes, high-quality development ultimately depends on reforms. In this endeavor, the IMF is committed to being a partner, including through our ongoing policy dialogue and mutual learning. And also to working together to tackle global challenges such as fragmentation, climate change, and debt.
Working together delivers for all
International cooperation in our interconnected world is essential to solving these challenges—which we know have an outsized impact on the most vulnerable members of our global community. The world comes together at the IMF to tackle problems, and we appreciate China’s continued support for our efforts.
China has helped strengthen the IMF’s financial capacity through contributions to our concessional lending instrument for low-income countries, our recently-created Resilience and Sustainability Facility, and our capacity development initiatives. China has shown remarkable leadership in helping forge the agreement to increase the IMF’s permanent resources by 50 percent.
We also recognize China’s important role in addressing debt distress in emerging and developing economies. With many countries at or near debt distress much work is needed among creditors to speed up debt relief and we look forward to China’s continued strong engagement.
With the dynamism, confidence, and luck of the dragon—and a renewed spirit of international cooperation—China and the world can rise together to the challenges we face today for a more prosperous future for everyone.
Thank you, xiè xie!
