August 15, 2017
PRESS OFFICER: Ting Yan
Phone: +1 202 623-7100Email: MEDIA@IMF.org
On July 28, 2017, the Executive Board of the International Monetary Fund (IMF) concluded the Article IV consultation[1] with China.
China continues to transition to a more sustainable growth path and reforms have advanced across a wide domain. Growth slowed to 6.7 percent in 2016 and is projected to remain robust at 6.7 percent this year owing to the momentum from last year’s policy support, strengthening external demand, and progress in domestic reforms. Inflation rose to 2 percent in 2016 and is expected to remain stable at 2 percent in 2017. Important supervisory and regulatory action is being taken against financial sector risks, and corporate debt is growing more slowly, reflecting restructuring initiatives and overcapacity reduction.
Fiscal policy remained expansionary and credit growth remained strong in 2016. Growth momentum will likely decline over the course of the year reflecting recent regulatory measures which have tightened financial conditions and contributed to a declining credit impulse.
The current account surplus fell to 1.7 percent of GDP in 2016, driven by a sharp recovery in goods imports and continued strength in tourism outflows. It is projected to further narrow to 1.4 percent of GDP this year, due primarily to robust domestic demand and a deterioration in terms of trade. Capital outflows have moderated amid tighter enforcement of capital flow management measures and more stable exchange rate expectations. After depreciating 5 percent in real effective terms in 2016, the renminbi has depreciated some 2¾ percent since then and remains broadly in line with fundamentals.
Executive Board Assessment[2]
Executive Directors acknowledged that China’s continued strong growth has provided critical support to global demand. They commended the authorities’ ongoing progress in rebalancing the Chinese economy toward services and consumption. They noted that economic activity had recently firmed and saw this as an opportunity for the authorities to accelerate needed reforms and focus more on the quality and sustainability of growth.
Directors supported the importance of reducing national savings to help prevent domestic and external imbalances. In this regard, Directors emphasized the need for greater social spending and making the tax system more progressive.
Directors welcomed the improvements in the performance of state-owned enterprises and urged further reforms, including hardening budget constraints, accelerating restructuring of under performing debt, and allowing exit of non-viable firms. Directors also highlighted the importance of a broader improvement in the investment climate, including reducing barriers to entry, ensuring a level playing field, and reducing trade barriers. Directors welcomed the authorities’ efforts to reduce overcapacity and urged them to broaden such efforts with greater reliance on market forces.
Directors commended the authorities’ increased focus on reducing financial stability risks and urged them to continue to strengthen regulatory and supervisory efforts. In this connection, they looked forward to the findings and recommendations of the ongoing Financial Sector Assessment Program.
Directors supported a gradual tightening of monetary policy if core inflation continues to pick up.
Directors concurred that the immediate priority for fiscal policy should be to adjust the composition of the budget to support faster rebalancing and ease the costs of transition from an investment and credit led model. Directors agreed that having some fiscal space allows the pace of consolidation to balance concerns about growth and sustainability. They also underscored the importance of monitoring debt, noting that further efforts to reform central-local fiscal relations can help reduce risks arising from off budget spending.
Directors took note of the staff assessment that the renminbi remains broadly in line with fundamentals, although the external position in 2016 was moderately stronger than implied by fundamentals. They stressed the importance of continued progress toward greater exchange rate flexibility, and welcomed the authorities’ commitment to deepen reforms and rely more on market forces to determine the exchange rate. Directors noted that recent steps to tighten enforcement of capital flow measures were broadly consistent with the Fund’s Institutional View, but emphasized the need to ensure consistent and transparent implementation. Directors stressed the importance of carefully sequenced reforms to support the ongoing capital account liberalization.
Directors agreed that further improvements in policy frameworks are needed to maintain economic growth and stability in the medium term. They supported improving the fiscal framework to increase local government autonomy, reduce the scope for off budget spending, and centralize some expenditure responsibilities. They also called for completing the transition to a modern price based monetary policy framework. To inform better policymaking and investment decisions, Directors encouraged the authorities to continue to improve both the coverage and quality of officially provided statistics.
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China: Selected Economic Indicators |
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2012 |
2013 |
2014 |
2015 |
2016 |
2017 |
2018 |
2019 |
2020 |
2021 |
2022 |
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Projections |
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NATIONAL ACCOUNTS |
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Real GDP (base=2015) |
7.9 |
7.8 |
7.3 |
6.9 |
6.7 |
6.7 |
6.4 |
6.4 |
6.3 |
6.0 |
5.8 |
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Total domestic demand |
7.9 |
8.1 |
7.2 |
7.2 |
7.4 |
7.0 |
6.9 |
6.8 |
6.6 |
6.2 |
5.9 |
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Consumption |
8.7 |
7.2 |
7.2 |
8.3 |
8.4 |
8.6 |
8.0 |
7.4 |
7.1 |
6.6 |
6.2 |
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Investment |
7.1 |
9.1 |
7.1 |
6.1 |
6.3 |
5.2 |
5.5 |
6.0 |
6.0 |
5.8 |
5.6 |
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Fixed |
9.0 |
9.3 |
6.8 |
6.7 |
6.7 |
5.2 |
5.6 |
6.1 |
6.2 |
6.0 |
5.8 |
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Inventories (contribution) |
-0.6 |
0.1 |
0.2 |
-0.2 |
-0.1 |
0.1 |
0.0 |
0.0 |
0.0 |
0.0 |
0.0 |
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Net exports (contribution) |
0.3 |
0.1 |
0.4 |
-0.1 |
-0.5 |
-0.1 |
-0.2 |
-0.2 |
-0.2 |
-0.2 |
-0.1 |
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Total capital formation (percent of GDP) |
47.2 |
47.3 |
46.8 |
44.7 |
44.2 |
43.7 |
42.9 |
42.4 |
42.0 |
41.7 |
41.4 |
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Gross national saving (percent of GDP) 1/ |
49.7 |
48.8 |
49.0 |
47.5 |
45.9 |
45.1 |
44.3 |
43.6 |
42.9 |
42.3 |
41.8 |
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LABOR MARKET |
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Unemployment rate (annual average) 2/ |
… |
5.0 |
5.1 |
5.1 |
5.0 |
5.0 |
4.9 |
4.9 |
4.9 |
4.9 |
4.9 |
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Wages (migrant workers) |
33.1 |
12.9 |
10.0 |
9.5 |
7.1 |
7.0 |
6.8 |
6.7 |
6.6 |
6.5 |
6.5 |
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PRICES |
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Consumer prices (average) |
2.6 |
2.6 |
2.0 |
1.4 |
2.0 |
2.0 |
2.4 |
2.5 |
2.6 |
2.6 |
2.6 |
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GDP Deflator |
3.2 |
2.4 |
1.0 |
1.1 |
0.0 |
2.2 |
2.1 |
2.0 |
2.1 |
2.1 |
2.0 |
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FINANCIAL |
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7-day repo rate (percent) |
4.6 |
5.4 |
5.1 |
2.5 |
2.6 |
3.0 |
… |
… |
… |
… |
… |
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10 year government bond rate (percent) |
3.6 |
4.6 |
3.7 |
2.9 |
3.1 |
3.5 |
… |
… |
… |
… |
… |
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Real effective exchange rate (average) |
5.6 |
6.3 |
3.2 |
10.2 |
-5.6 |
… |
… |
… |
… |
… |
… |
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Nominal effective exchange rate (average) |
5.0 |
5.3 |
3.1 |
9.5 |
-6.5 |
… |
… |
… |
… |
… |
… |
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MACRO-FINANCIAL |
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Total social financing 3/ |
19.1 |
17.5 |
14.3 |
12.4 |
12.9 |
13.1 |
11.0 |
12.2 |
11.4 |
10.8 |
9.9 |
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In percent of GDP |
169.0 |
180.0 |
189.8 |
197.6 |
209.0 |
216.9 |
221.6 |
229.1 |
235.3 |
240.9 |
245.5 |
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Total domestic nonfinancial sector debt |
18.4 |
17.5 |
14.3 |
16.1 |
17.0 |
15.7 |
13.4 |
12.6 |
12.2 |
11.4 |
10.5 |
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In percent of GDP |
178.7 |
190.3 |
200.7 |
215.8 |
236.4 |
251.0 |
262.1 |
272.0 |
281.3 |
289.6 |
296.7 |
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Domestic credit to the private sector |
19.8 |
16.6 |
13.1 |
14.7 |
16.7 |
16.0 |
12.1 |
11.5 |
10.8 |
10.2 |
9.6 |
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In percent of GDP |
134.6 |
142.3 |
148.5 |
157.6 |
172.3 |
183.3 |
189.2 |
194.3 |
198.4 |
202.1 |
205.3 |
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House price 4/ |
8.7 |
7.7 |
1.4 |
9.1 |
11.3 |
10.4 |
8.6 |
8.3 |
7.9 |
7.2 |
6.8 |
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Household disposable income (percent of GDP) |
59.4 |
60.0 |
60.7 |
61.0 |
61.4 |
61.7 |
62.0 |
62.0 |
62.1 |
62.2 |
62.5 |
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Household savings (percent of disposable income) |
40.8 |
38.5 |
38.0 |
37.6 |
35.9 |
35.3 |
34.1 |
33.0 |
32.0 |
31.3 |
31.0 |
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Household debt (percent of GDP) |
29.6 |
33.0 |
35.4 |
38.2 |
44.2 |
46.3 |
48.7 |
51.3 |
54.0 |
57.1 |
60.5 |
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Non-financial corporate domestic debt (percent of GDP) |
105.0 |
109.3 |
113.0 |
119.4 |
128.1 |
134.9 |
138.5 |
141.1 |
142.7 |
143.5 |
143.3 |
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GENERAL GOVERNMENT (Percent of GDP) |
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Net lending/borrowing 5/ |
-0.3 |
-0.8 |
-0.9 |
-2.8 |
-3.7 |
-3.7 |
-3.7 |
-3.9 |
-4.0 |
-4.1 |
-4.2 |
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Revenue |
27.8 |
27.7 |
28.1 |
28.5 |
28.2 |
27.4 |
27.3 |
27.2 |
26.9 |
26.8 |
26.7 |
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Expenditure |
28.1 |
28.5 |
29.0 |
31.3 |
31.9 |
31.1 |
31.1 |
31.1 |
30.9 |
30.9 |
30.8 |
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Debt 6/ |
15.5 |
16.0 |
38.6 |
36.4 |
36.6 |
37.5 |
38.4 |
39.3 |
40.2 |
41.2 |
42.2 |
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Structural balance |
-0.1 |
-0.5 |
-0.5 |
-2.5 |
-3.6 |
-3.7 |
-3.7 |
-3.9 |
-4.0 |
-4.1 |
-4.2 |
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BALANCE OF PAYMENTS (Percent of GDP) |
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Current account balance |
2.5 |
1.5 |
2.2 |
2.7 |
1.7 |
1.4 |
1.3 |
1.2 |
0.9 |
0.7 |
0.4 |
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Trade balance |
3.6 |
3.7 |
4.1 |
5.1 |
4.4 |
4.1 |
3.9 |
3.7 |
3.4 |
3.2 |
3.0 |
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Services balance |
-0.9 |
-1.3 |
-2.0 |
-1.9 |
-2.2 |
-2.3 |
-2.3 |
-2.3 |
-2.4 |
-2.4 |
-2.5 |
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Net international investment position |
21.8 |
20.7 |
15.2 |
14.9 |
16.0 |
16.7 |
16.7 |
16.6 |
16.2 |
15.6 |
14.9 |
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Gross official reserves (bn US$) |
3,388 |
3,880 |
3,899 |
3,406 |
3,098 |
2,934 |
2,902 |
2,881 |
2,848 |
2,792 |
2,714 |
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MEMORANDUM ITEMS |
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Nominal GDP (bn RMB) 7/ |
54,099 |
59,696 |
64,718 |
69,911 |
74,631 |
81,344 |
88,364 |
95,919 |
104,067 |
112,608 |
121,482 |
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Augmented debt (percent of GDP) 8/ |
44.1 |
48.1 |
52.3 |
58.2 |
62.2 |
68.1 |
73.2 |
78.1 |
83.1 |
87.6 |
91.5 |
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Augmented net lending/borrowing (percent of GDP) 8/ |
-5.1 |
-7.6 |
-7.2 |
-8.4 |
-10.4 |
-10.6 |
-10.8 |
-11.1 |
-11.2 |
-11.0 |
-10.7 |
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Augmented fiscal balance (percent of GDP) 9/ |
-7.8 |
-10.3 |
-9.8 |
-10.2 |
-12.4 |
-12.6 |
-12.6 |
-12.6 |
-12.6 |
-12.3 |
-11.9 |
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Sources: CEIC Data Co., Ltd.; IMF, Information Notice System; and IMF staff estimates and projections. |
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1/ IMF staff estimates for 2015 and 2016. |
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2/ Surveyed unemployment rate. |
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3/ Not adjusted for local government debt swap. |
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4/ Average selling prices estimated by IMF staff based on housing price data (Commodity Building Residential Price) of 70 large and mid-sized cities published by National Bureau of Statistics (NBS). |
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5/ Adjustments are made to the authorities' fiscal budgetary balances to reflect consolidated general government balance, including government-managed funds, state-administered SOE funds, adjustment to the stabilization fund, and social security fund. |
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6/ Official government debt (narrow definition). Estimates of debt levels before 2015 include central government debt and explicit local government debt (identified by MoF and NPC in Sep 2015). The large increase in general government debt in 2014 reflects the authorities' recognition of the off-budget local government debt borrowed previously. The estimation of debt levels after 2015 assumes zero off-budget borrowing from 2015 to 2021. |
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7/ Expenditure side nominal GDP. |
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8/ Augmented fiscal data expand the perimeter of government to include local government financing vehicles and other off-budget activity. |
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9/ "Augmented fiscal balance" = "augmented net lending/borrowing" - "net land sales proceeds" (in percent of GDP) i.e. with land sales treated as financing. |
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[1] Under Article IV of the IMF's Articles of Agreement, the IMF holds bilateral discussions with members, usually every year. A staff team visits the country, collects economic and financial information, and discusses with officials the country's economic developments and policies. On return to headquarters, the staff prepares a report, which forms the basis for discussion by the Executive Board.
[2] At the conclusion of the discussion, the Managing Director, as Chairman of the Board, summarizes the views of Executive Directors, and this summary is transmitted to the country's authorities. An explanation of any qualifiers used in summings up can be found here: http://www.imf.org/external/np/sec/misc/qualifiers.htm.
