IMF Staff Completes 2024 Article IV Mission to the People’s Republic of China
IMF News, May 29, 2024
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- IMF Staff Completes 2024 Article IV Mission to the People’s Republic of China
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- Published: May 29, 2024
Mission context and engagement
- Mission led by Ms. Sonali Jain-Chandra, Mission Chief for China; team visited China from May 16 to 28 for the 2024 Article IV Consultation.
- IMF First Deputy Managing Director Ms. Gita Gopinath joined policy discussions and met with senior officials including PBoC Governor PAN Gongsheng, MOF Vice Minister LIAO Min, MOFCOM Vice Minister WANG Shouwen, PBoC Deputy Governor XUAN Changneng, NFRA Vice Chairman XIAO Yuanqi, and EXIM President REN Shengjun.
- End-of-Mission press release dated May 28, 2024. End-of-Mission statements convey preliminary findings and do not necessarily represent the views of the IMF’s Executive Board.
Growth and inflation projections
- Growth projections:
- China’s economy is projected to grow by 5 percent in 2024.
- China’s economy is projected to grow by 4.5 percent in 2025.
- These reflect upward revisions of 0.4 percentage points for both years compared to the April WEO projections, driven by strong Q1 GDP data and recent policy measures.
- Over the medium term, growth is expected to decelerate to 3.3 percent by 2029 due to aging and slower productivity growth.
- Inflation:
- Core inflation increase only gradually to average 1 percent in 2024.
- Inflation is expected to rise but remain low as output remains below potential.
Risks and near-term priorities
- Risks:
- Risks are tilted to the downside, including from greater- or longer-than-expected property sector adjustment and increasing fragmentation pressures.
- Immediate priorities (near-term macroeconomic policies):
- Adopt a comprehensive policy package to facilitate the property sector adjustment and provide adequate macroeconomic support to boost domestic demand and mitigate downside risks.
- Mobilize central government resources to protect buyers of pre-sold unfinished homes and accelerate the completion of unfinished presold housing, paving the way for resolving insolvent developers.
- Allow for greater price flexibility in housing, while monitoring and mitigating potential macro-financial spillovers, to stimulate housing demand and help restore equilibrium.
- Fiscal policy should prioritize providing one-off central government financial support for the real estate sector.
- Excluding the one-time property sector package, a neutral fiscal stance in 2024 would balance trade-offs between supporting domestic demand, mitigating deflation risks, and managing unfavorable debt dynamics.
- Given subdued inflation and output below potential, there is scope for further monetary easing.
- Greater exchange rate flexibility would reduce deflation risks and help absorb external shocks.
Property sector recommendations
- Continue the ongoing housing market correction to steer the sector towards a more sustainable path.
- Implement a more comprehensive policy package to facilitate an efficient and less costly transition while safeguarding against downside risks.
- Prioritize measures to protect buyers of pre-sold unfinished homes and accelerate completion of unfinished presold housing to enable resolution of insolvent developers.
Fiscal and local government debt issues
- China faces significant fiscal challenges, especially for local governments.
- Sustained fiscal consolidation over the medium term is needed to stabilize debt.
- Restructuring the unsustainable debt of local government financing vehicles can help reduce fiscal strains.
- One-off central government financial support for the real estate sector is recommended as a near-term priority.
Financial stability and financial sector policies
- Elevated financial stability risks stem from vulnerabilities in the property sector, local government debt, and smaller financial institutions.
- Recommended actions:
- Strengthen the bank resolution framework.
- Strictly apply prudential standards to enhance financial stability and mitigate risks.
Structural reform agenda for high-quality growth
- Achieving high-quality growth requires wide-ranging structural reforms.
- Key priorities:
- Rebalance the economy towards consumption by strengthening the social safety net.
- Liberalize the services sector to boost growth potential and create jobs.
- Scale back distortive supply side and industrial policies that support manufacturing sectors, which can lead to misallocation of domestic resources and potentially affect trading partners.
- Remove trade and investment restrictions to raise domestic productivity and ease fragmentation pressures.
- Continue efforts to strengthen the multilateral trading system, particularly the WTO.
Other IMF observations and cooperation
- China has taken steps to support innovation, especially in green and high-tech sectors, upgrade financial sector regulations, and introduce policies to mitigate property and local government risks; a more comprehensive and balanced policy approach would help navigate headwinds.
- The Fund looks forward to continued cooperation with the authorities, noting China’s role in supporting debt restructuring in low-income and vulnerable countries and promoting the green transition.
IMF Staff Completes 2024 Article IV Mission to the People’s Republic of China — Press Release No. 24/184 (May 28, 2024).