IMF Staff Completes 2018 Article IV Mission to China
IMF News, May 30, 2018
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- Published: May 30, 2018
Economic outlook and key statistics
- China’s economic growth accelerated in 2017 and is expected to weaken only slightly in 2018 to 6.6 percent and moderate gradually to about 5½ percent by 2023.
- Staff project full-year 2018 growth at 6.6 percent and to moderate gradually to about 5½ percent by 2023.
- “Economic growth accelerated in 2017 for the first time since 2010, driven by a cyclical rebound in global trade. This strength is expected to weaken only slightly in 2018.”
Reform progress (staff observations)
- Financial sector de-risking accelerated, with a wide range of decisive measures adopted.
- Credit growth slowed, though “it remains too fast.”
- Overcapacity reduction progressed.
- Anti-pollution efforts intensified.
- Opening up continued.
Major policy recommendations and priorities
- Follow through on stated intentions to de-emphasize growth targets and focus on high-quality growth. “Rebalancing the economy will likely mean somewhat slower overall growth. This should not be resisted, for example, with credit-fueled investment stimulus--this would make the debt problem worse and undermine growth later on.”
- Continue to rein in credit growth. Slowing it further will require:
- less public investment,
- tighter constraints on SOE borrowing,
- curbing the rapid growth in household debt.
- Further boost consumption by increasing government social spending (for example on health, education, and social transfers) and finance it with progressive and green revenue sources like taxes on income, property and carbon emissions.
- Allow market forces a more decisive role by reducing the dominance of the public sector in many industries, opening up more markets to the private sector, and ensuring fair competition.
- Accelerate opening up to the rest of the world to support China’s high-quality growth agenda and benefit the global economy; “Recent efforts to defuse trade tensions are welcome and efforts should continue to seek a negotiated settlement that strengthens the global economy.”
- Modernize policy frameworks:
- continue financial sector reforms and ensure the new institutional structure of financial supervisors is a success;
- make monetary policy more price, rather than quantity, based;
- allow the exchange rate to continue to become more flexible;
- have the central government share more of local governments’ spending responsibilities while increasing their ability to raise their own revenues;
- strengthen China’s relatively weak macroeconomic data.
Additional thematic findings and advice
- Support the authorities’ strategy to shift policy focus from high-speed to high-quality growth; shifting from excessive, debt-financed investment to consumption will sustain growth, raise living standards, and reduce risks.
- Encourage exposing sheltered sectors and firms to more domestic and foreign competition, ensuring a level playing field, and better protecting intellectual property rights to strengthen China’s role as a credible leader of better globalization.
- The Belt and Road Initiative is “a welcome and potentially transformative initiative.” Its success will be enhanced by having an overarching framework, with good coordination and due attention to debt sustainability in partner countries.
Mission engagement
- An IMF team, led by Mr. James Daniel, Assistant Director of the Asia and Pacific Department, visited Beijing and Shenzhen from May 17 to 30, 2018, to conduct discussions on the annual Article IV review of the Chinese economy.
- The IMF's First Deputy Managing Director, Mr. David Lipton, joined the concluding policy discussions and met with Vice Premier Liu He, People’s Bank of China Governor Yi Gang, Finance Minister Liu Kun, China Banking and Insurance Regulatory Commission (CBIRC) Chairman Guo Shuqing and China Securities Regulatory Commission (CSRC) Chairman Liu Shiyu, among other senior officials.
- At the end of the visit, Mr. Lipton issued a statement summarizing findings, commending reform progress, and urging continued and accelerated reforms.
Press Release No. 18/200 — May 29, 2018 — IMF Communications Department