IMF Executive Board Concludes 2024 Article IV Consultation with the People’s Republic of China
IMF News, August 2, 2024
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- Published: August 2, 2024
Overview
- The Executive Board of the International Monetary Fund (IMF) concluded the Article IV consultation with the People’s Republic of China on July 19, 2024. (Press Release No. 24/295)
- China’s economy remained resilient despite continued weakness in the property sector:
- GDP grew by 5.2 percent in 2023.
- GDP grew by 5 percent y/y in the first half of 2024.
- Growth drivers: strong public investment, post-COVID recovery in private consumption, and more recently net exports.
- Inflation has been low in recent quarters amid continued economic slack.
Outlook and Projections
- Near term:
- Growth is projected to be broadly in line with the government’s target in 2024.
- Inflation is expected to pick up gradually as the output gap closes and the impact of lower commodity prices wanes.
- Medium term:
- Growth is projected to gradually decline to about 3.3 percent in 2029 amid headwinds from weak productivity and an aging population.
- Uncertainty is high; upside and downside scenarios noted:
- Downside: deeper-than-expected contraction in the property sector combined with high debt could cause sustained disinflationary pressures and adverse macro-financial feedback loops.
- Upside: decisive policy action to facilitate property-sector adjustment or market-oriented structural reforms could boost confidence and yield better-than-expected outcomes.
Executive Board Assessment — Key Findings
- Directors welcomed resilient growth and the post‑pandemic recovery in private consumption.
- Directors emphasized downside risks from:
- Ongoing adjustment in the property market.
- Drag from local government debt.
- Short-term macro policy stance:
- Directors concurred that macroeconomic policies should support domestic demand in the short term.
- A neutral structural fiscal stance in 2024 would help restore consumer confidence and support domestic demand while mitigating downside risks.
- Fiscal and structural priorities:
- Reorient expenditure away from investment toward households via expanded social protection and more progressive tax regime.
- A gradual decline in the structural fiscal deficit can begin in 2025, paced by recovery strength, inflation, and property outlook.
- Stabilizing public debt requires sustained fiscal consolidation through reduced off‑budget investment and wide‑ranging tax and social security reforms.
- Improve monitoring of local government finances, reduce structural expenditure‑revenue gaps, and establish subnational fiscal rules.
- Reduce debt stock of local government financing vehicles via greater use of insolvency tools.
- Monetary and exchange rate policy:
- Directors welcomed the People’s Bank of China’s monetary policy response and encouraged additional monetary easing via interest rates to boost domestic demand and mitigate deflation risks.
- Greater exchange rate flexibility would help absorb external shocks.
- Financial sector and regulatory reforms:
- Noted significant changes to regulatory and supervisory architecture to enhance risk mitigation.
- Financial stability risks remain elevated; call to phase out forbearance measures, strictly apply prudential policies, and tackle legacy vulnerabilities.
- Need comprehensive strategy to strengthen small and medium banks, upgrade crisis management and bank resolution frameworks, and enhance systemic risk oversight.
- Continue strengthening the AML/CFT framework.
- Structural reform priorities to foster greener and more balanced growth:
- Rebalance demand toward consumption, boost services potential by reducing regulatory barriers.
- Implement SOE reforms, gradually increase the retirement age, and strengthen labor market policies.
- Accelerate power sector reforms, including reforms to the emission trading system.
- External and multilateral role:
- Directors welcomed China’s constructive role in supporting sovereign debt restructuring in low‑income and vulnerable countries and tackling the global climate crisis.
- Agreed that scaling back industrial policies (used only for well‑defined market failures) and improving transparency around government support could reduce domestic resource misallocation, lessen fragmentation pressures, and mitigate international spillovers.
- Data transparency:
- Directors agreed that addressing remaining data gaps would help enhance data transparency and strengthen policymaking.
Policy Recommendations (summarized)
- Short term:
- Support domestic demand with neutral structural fiscal stance in 2024.
- Consider additional monetary easing via interest rates; allow greater exchange rate flexibility.
- Medium and long term:
- Reorient fiscal spending toward households and social protection; implement more progressive taxation.
- Begin gradual fiscal consolidation from 2025, contingent on recovery and inflation.
- Strengthen fiscal frameworks: monitor local government finances, reduce expenditure‑revenue gaps, establish subnational fiscal rules.
- Use insolvency tools to address LGFV debt where appropriate.
- Phase out financial forbearance, strengthen prudential standards, upgrade crisis management and resolution frameworks.
- Advance structural reforms: SOE reform, retirement-age increases, labor market policies, reduce regulatory barriers to services, accelerate power-sector and ETS reforms.
- Improve transparency of government support and scale back industrial policies except where market failures are well defined.
- Address data gaps to improve transparency and policy effectiveness.
Selected Economic Indicators (2019–2029; annual percentage change unless otherwise indicated)
- Real GDP (base=2015)
- 2019: 6.0
- 2020: 2.2
- 2021: 8.4
- 2022: 3.0
- 2023: 5.2
- 2024: 5.0
- 2025: 4.5
- 2026: 4.1
- 2027: 3.6
- 2028: 3.4
- 2029: 3.3
- Total domestic demand
- 2019: 5.3
- 2020: 1.7
- 2021: 6.8
- 2022: 2.8
- 2023: 6.1
- 2024: 4.8
- 2025: 4.6
- 2026: 4.3
- 2027: 3.7
- 2028: 3.5
- Consumption
- 2019: 6.3
- 2020: -0.3
- 2021: 9.0
- 2022: 2.3
- 2023: 8.0
- 2024: 5.6
- 2025: 4.7
- 2026: 4.2
- 2027: 3.8
- Fixed investment
- 2019: 3.2
- 2020: 4.9
- 2021: 4.4
- 2022: 3.1
- Net exports (contribution)
- 2019: 0.7
- 2020: 0.6
- 2021: 1.8
- 2022: 0.3
- 2023: -0.6
- 2024: 0.4
- 2025: 0.0
- Total capital formation (percent of GDP)
- 2019: 43.1
- 2020: 42.9
- 2021: 43.3
- 2022: 43.2
- 2023: 41.6
- 2024: 41.8
- 2025: 41.7
- Gross national saving (percent of GDP) 1/
- 2019: 43.8
- 2020: 44.5
- 2021: 45.3
- 2022: 45.7
- 2023: 43.0
- 2024: 43.4
- 2025: 42.7
- Output gap estimate
- 2019: -1.0
- 2020: -4.0
- 2021: -1.1
- 2022: -2.8
- 2023: -2.0
- 2024: -1.2
- 2025: -0.5
- Unemployment rate (year-end) 2/
- 2019: 5.1
- 2020: 5.5
- Consumer prices (average)
- 2019: 2.9
- 2020: 2.5
- 2021: 0.9
- 2022: 2.0
- 2023: 0.2
- 2024: 1.9
- Consumer prices (end of period)
- 2019: 1.5
- GDP Deflator
- 2019: 2.1
- 2020: 1.3
- 2021: 0.1
- Total social financing (annual change)
- 2019: 10.7
- 2020: 13.3
- 2021: 10.3
- 2022: 9.6
- 2023: 9.8
- 2024: 8.6
- 2025: 8.5
- 2026: 7.5
- Total social financing (in percent of GDP)
- 2019: 254
- 2020: 278
- 2021: 274
- 2022: 286
- 2023: 301
- 2024: 310
- 2025: 317
- 2026: 320
- 2027: 326
- 2028: 333
- 2029: 339
- Household debt (percent of GDP)
- 2019: 55.8
- 2020: 61.6
- 2021: 62.1
- 2022: 62.3
- 2023: 63.7
- 2024: 64.0
- 2025: 63.0
- 2026: 62.7
- 2027: 62.6
- 2028: 62.5
- 2029: 62.4
- Non-financial corporate domestic debt (percent of GDP)
- 2019: 106
- 2020: 112
- 2021: 116
- 2022: 119
- 2023: 122
- 2024: 123
- 2025: 125
- 2026: 127
- General government net lending/borrowing (Percent of GDP) 4/
- 2019: -6.1
- 2020: -9.7
- 2021: -6.0
- 2022: -7.5
- 2023: -7.0
- 2024: -7.4
- 2025: -7.6
- 2026: -7.8
- 2027: -7.9
- 2028: -8.1
- 2029: -8.2
- Revenue (percent of GDP)
- 2019: 28.1
- 2020: 25.7
- 2021: 26.6
- 2022: 26.0
- 2023: 26.3
- 2024: 26.4
- 2025: 26.8
- 2026: 27.0
- Expenditure (percent of GDP)
- 2019: 34.2
- 2020: 35.4
- 2021: 32.7
- 2022: 33.5
- 2023: 33.7
- 2024: 34.0
- 2025: 34.4
- 2026: 34.7
- 2027: 35.0
- 2028: 35.3
- Debt (percent of GDP)
- 2019: 38.5
- 2020: 45.4
- 2021: 46.9
- 2022: 50.7
- 2023: 56.3
- 2024: 60.5
- 2025: 67.1
- 2026: 70.9
- 2027: 74.9
- 2028: 79.1
- Current account balance (percent of GDP)
- 2019: 1.4
- 2020: 1.2
- Services balance
- 2019: -1.8
- 2020: -1.3
- 2021: -1.4
- 2022: -1.5
- 2023: -1.6
- 2024: -1.7
- Net international investment position
- 2019: 16.0
- 2020: 15.4
- 2021: 12.3
- 2022: 13.6
- 2023: 16.4
- 2024: 17.2
- 2025: 17.5
- 2026: 17.8
- 2027: 18.1
- 2028: 18.3
- 2029: 18.5
- Gross official reserves (billions of U.S. dollars)
- 2019: 3,223
- 2020: 3,357
- 2021: 3,427
- 2022: 3,307
- 2023: 3,450
- 2024: 3,817
- 2025: 4,151
- 2026: 4,259
- 2027: 4,377
- 2028: 4,497
- 2029: 4,619
- Nominal GDP (billions of RMB) 5/
- 2019: 99,071
- 2020: 102,563
- 2021: 114,528
- 2022: 120,247
- 2023: 125,798
- 2024: 132,273
- 2025: 140,670
- 2026: 149,413
- 2027: 157,829
- 2028: 166,426
- 2029: 175,317
- Augmented debt (percent of GDP) 6/
- 2019: 86.3
- 2020: 98.8
- 2021: 100.8
- 2022: 107.9
- 2023: 116.9
- 2024: 124.0
- 2025: 128.9
- 2026: 133.7
- 2027: 138.7
- 2028: 143.6
- 2029: 148.2
- Augmented net lending/borrowing (percent of GDP) 6/
- 2019: -12.5
- 2020: -17.0
- 2021: -12.1
- 2022: -13.4
- 2023: -13.0
- 2024: -13.2
- 2025: -13.1
- 2026: -12.9
- 2027: -12.7
- 2028: -12.2
- Change in Augmented Cyclically-Adjusted Primary Balance 7/
- 2019: -3.1
- 2020: -2.4
- 2021: -0.2
- 2022: 0.5
Sources and notes included in the original release: Bloomberg; CEIC Data Company Limited; IMF International Financial Statistics database; and IMF staff estimates and projections. Footnotes in the release explain revisions and coverage of fiscal and augmented measures.
Source: Press Release No. 24/295, IMF Communications Department, August 2, 2024.
References
- https://www.imf.org/-/media/images/imf/bios/imfboard.jpg
- The Executive Board
- People's Republic of China and the IMF
- IMF Policy Advice -- A Factsheet
- Press Releases
- PRESS CENTER
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