Achieving China’s Great Promise
IMF Blog, August 8, 2013
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Bibliographic details
- Authors: MurtazaSyed
- Published: August 8, 2013
Context and purpose
- Author: Murtaza Syed
- Date: August 8, 2013
- Framing: China must manage two simultaneous adjustments—unwinding post‑crisis fiscal and monetary stimulus that created vulnerabilities, and transitioning away from an investment- and credit-led growth model toward a consumption- and services-led model—to prolong sustainable growth and benefit the global economy.
Why these adjustments are needed
- Pre-crisis drivers: rapid productivity gains from restructuring the state-owned sector, banking-system cleanup, and WTO accession led to a decade of investment- and export-powered growth.
- Post-crisis response: loose monetary and quasi-fiscal policies supported growth but produced:
- rising local government debt;
- an overstretched financial system;
- increased reliance on ever higher levels of (increasingly inefficient) investment and credit.
- Objective: transition away from credit- and investment-led growth to a more consumer-based, sustainable model.
Near-term policy guidance and calibration
- Immediate actions:
- Begin to curb credit growth, particularly through less well-regulated parts of the financial system and sectors with overcapacity and excess leverage, using tighter regulation and supervision.
- Unwind quasi-fiscal support through local governments, which has contributed to government debt rising to nearly 50 percent of GDP.
- Contingency and calibration:
- If growth slows too sharply or employment worsens significantly, there is scope to reverse gears on fiscal policy quickly with targeted stimulus.
- Any stimulus should be:
- conducted through the budget (and not through banks and local government platforms);
- directed at supporting household incomes and consumption (and not the corporate sector and investment).
Structural reforms to achieve a consumer‑led, inclusive, and greener growth path ("Growth for all")
- Reform objectives:
- Rely more on market forces and price signals so banks and firms discover new growth engines.
- Reform the financial system and the corporate sector to provide funding on more market-based terms to a broader set of borrowers.
- Shift investment toward labor-intensive service industries and higher value-added exporters.
- Complementary measures to boost consumption and incomes (three strands):
1. Reduce incentives for investment by putting in place fairer resource prices, interest rates, and distributing dividends from state-owned enterprises. 2. Boost household incomes through higher wages and lower social security contributions. 3. Lower precautionary savings by strengthening the social safety net and increasing spending on pensions and healthcare.
- Fiscal/administrative adjustments:
- Structural changes to the fiscal relationship between central and local governments are required so social expenditure obligations and priority infrastructure needs can be met without local governments funding themselves through indirect borrowing and land sales.
- Expected trade-offs and timeline:
- Reforms need careful calibration and sequencing and will take time to bear fruit.
- The transition will likely involve accepting somewhat lower growth in the next few years as measures are implemented.
- Successful implementation could create a virtuous circle of long‑lasting benefits, reduce the risk of a hard landing, and help avoid the middle‑income trap.
Key statistics and factual points (preserved exactly)
- Government debt rising to nearly 50 percent of GDP.
- Investment already accounting for nearly half of economic activity.
- Timing note: expectations that a bold new phase of reforms will be announced this fall.
Murtaza Syed — Achieving China’s Great Promise, August 8, 2013
Content in this bundle
- iMFdirect博客, 实现中国的远大前程, 2013 年8 月8 日
- Country Report