{
  "title": "Transcript of Press Call on the Publication of the 2019 China Article IV Staff Report",
  "publication": "IMF News, August 13, 2019",
  "sourceUrl": "https://www.imf.org/en/news/articles/2019/08/13/tr08092019-transcript-of-the-press-conference-on-china-article-iv-consultations-report",
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  "summary": "Growth moderated in 2018, and, so far, in 2019, reflecting financial regulatory strengthening and softening external demand.",
  "publishDate": "2019-08-13",
  "sections": [
    {
      "heading": "Key messages from opening remarks (James Daniel, Mission Chief for China)",
      "content": "- Growth moderated in 2018, and, so far, in 2019, reflecting financial regulatory strengthening and softening external demand.\n- Financial deleveraging and reduced interconnectedness between banks and non-banks have helped contain the buildup of financial risks, but vulnerability has remained elevated, and progress on rebalancing is mixed.\n- A moderate slowdown is expected in 2019, and uncertainty around trade tensions remains high; risks are tilted to the downside.\n- The 2019 consultation focused on shifting from high speed to high quality growth in a highly uncertain environment by stabilizing the economy while continuing deleveraging and strengthening rebalancing."
    },
    {
      "heading": "Five key policy elements recommended",
      "content": "- Adjust macroeconomic policies to allow for a more flexible exchange rate.\n  - Already announced policy measure should be sufficient to stabilize growth in 2019.\n  - Given the recent increase in tariffs, a small fiscal expansion could be appropriate, which should be on budget, centrally financed, pro-rebalancing, and targeted to low income households to help maximize the multiplier effect, and contribute to lower poverty and inequality.\n- Improve external policies and frameworks.\n  - Work constructively with trading partners to better address shortcomings and enable an international trade system that can more readily adapt to economic changes in this national environment.\n  - The global economy would benefit from a more open, stable, transparent, rules-based international trade system.\n  - China would benefit from further opening up and other structural reforms that enhance competition.\n- Continue strengthening the financial sector.\n  - Fully implement announced regulatory reforms.\n  - Strengthen bank capitol, especially for smaller banks.\n  - Enhance macroprudential tools to address vulnerabilities from rising household debt.\n  - Develop a clear resolution regime to facilitate exit of weak banks.\n  - Remove implicit guarantees and harden the budget constraint for state-owned enterprises to improve credit allocation.\n- Boost competition.\n  - Open up nonstrategic sectors, particularly services, to private and foreign enterprise.\n  - Unify product markets across localities within China.\n- Modernize policy frameworks.\n  - Eventually move to a single policy rate in the monetary policy framework.\n  - Reduce the misalignment of center-local fiscal responsibilities.\n  - Further improve transparency and statistics."
    },
    {
      "heading": "Exchange rate and external sector assessments",
      "content": "- The 2018 average value of the RMB was assessed as \"broadly in line with medium term fundamentals and desirable policies\" (i.e., not significantly over or undervalued).\n- The IMF supports increased exchange rate flexibility for China and has encouraged authorities to continue along this path.\n- Estimates in the staff report suggest little FX intervention by the PBC (see report, paragraph eight).\n- Reserves have fallen since 2015 (noted as observable context for past intervention estimates).\n- A more flexible, market-determined exchange rate would:\n  - Give monetary policy more room to address domestic conditions.\n  - Help absorb external shocks, including tariff shocks."
    },
    {
      "heading": "Numerical estimates on tariff impacts (as discussed in Q&A)",
      "content": "- Estimate cited in the report: If tariffs on the remaining 300 billion in Chinese imports to the United States were increased to 25%, it would cut eight tenths off of Chinese growth in the following 12 months. (Reported figure: 0.8)\n- The 10% increase already imposed was estimated to take off 0.3 from growth. (Reported figure: 0.3)\n- James Daniel’s \"back of the envelope\" theoretical escalation from 10% to 25% was estimated at 0.5. (Reported figure: 0.5)\n- These estimates depend heavily on financial market impacts and confidence effects."
    },
    {
      "heading": "Other factual points and clarifications from Q&A",
      "content": "- The IMF conducts multilateral assessments of members’ exchange rates and external sector policies as part of its external sector report, typically published in mid-summer; the Article IV assessment is done once a year.\n- The staff report compared average effective exchange rates between Article IV cycles and noted that the estimate for May 2019 showed the yuan had depreciated about 0.2% relative to the prior Article IV average. (Reported figure: 0.2%)\n- The IMF has strongly encouraged Chinese authorities to publish data on FX intervention.\n- Discussions between the IMF and the U.S. Treasury on a range of issues are ongoing.\n- Monetary policy advice: increasingly focus monetary policy on domestic conditions, with the exchange rate allowed to play more of a role in absorbing external shocks.\n- If tariffs were significantly increased, a small, targeted, on-budget fiscal expansion could be appropriate to stabilize growth and support low-income households.\n\n---\n\n\n References\n\n- People's Republic of China and the IMF\n- IMF Policy Advice -- A Factsheet\n- Transcripts\n- PRESS CENTER\n- https://www.imf.org/en/home\n\nSource: https://www.imf.org/en/news/articles/2019/08/13/tr08092019-transcript-of-the-press-conference-on-china-article-iv-consultations-report"
    }
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    "Published: August 13, 2019",
    "Growth moderated in 2018, and, so far, in 2019, reflecting financial regulatory strengthening and softening external demand.",
    "Financial deleveraging and reduced interconnectedness between banks and non-banks have helped contain the buildup of financial risks, but vulnerability has remained elevated, and progress on rebalancing is mixed.",
    "A moderate slowdown is expected in 2019, and uncertainty around trade tensions remains high; risks are tilted to the downside.",
    "The 2019 consultation focused on shifting from high speed to high quality growth in a highly uncertain environment by stabilizing the economy while continuing deleveraging and strengthening rebalancing.",
    "Adjust macroeconomic policies to allow for a more flexible exchange rate.",
    "Improve external policies and frameworks.",
    "Continue strengthening the financial sector.",
    "Boost competition.",
    "Modernize policy frameworks.",
    "The 2018 average value of the RMB was assessed as \"broadly in line with medium term fundamentals and desirable policies\" (i.e., not significantly over or undervalued).",
    "The IMF supports increased exchange rate flexibility for China and has encouraged authorities to continue along this path.",
    "Estimates in the staff report suggest little FX intervention by the PBC (see report, paragraph eight).",
    "Reserves have fallen since 2015 (noted as observable context for past intervention estimates).",
    "A more flexible, market-determined exchange rate would:",
    "Estimate cited in the report: If tariffs on the remaining 300 billion in Chinese imports to the United States were increased to 25%, it would cut eight tenths off of Chinese growth in the following 12 months. (Reported figure: 0.8)",
    "The 10% increase already imposed was estimated to take off 0.3 from growth. (Reported figure: 0.3)",
    "James Daniel’s \"back of the envelope\" theoretical escalation from 10% to 25% was estimated at 0.5. (Reported figure: 0.5)",
    "These estimates depend heavily on financial market impacts and confidence effects.",
    "The IMF conducts multilateral assessments of members’ exchange rates and external sector policies as part of its external sector report, typically published in mid-summer; the Article IV assessment is done once a year.",
    "The staff report compared average effective exchange rates between Article IV cycles and noted that the estimate for May 2019 showed the yuan had depreciated about 0.2% relative to the prior Article IV average. (Reported figure: 0.2%)",
    "The IMF has strongly encouraged Chinese authorities to publish data on FX intervention.",
    "Discussions between the IMF and the U.S. Treasury on a range of issues are ongoing.",
    "Monetary policy advice: increasingly focus monetary policy on domestic conditions, with the exchange rate allowed to play more of a role in absorbing external shocks.",
    "If tariffs were significantly increased, a small, targeted, on-budget fiscal expansion could be appropriate to stabilize growth and support low-income households.",
    "[People's Republic of China and the IMF](http://www.imf.org/external/country/CHN/index.htm)",
    "[IMF Policy Advice -- A Factsheet](https://www.imf.org/en/about/factsheets/imf-surveillance)",
    "[Transcripts](https://www.imf.org/en/news/searchnews)",
    "[PRESS CENTER](http://presscenter.imf.org/)",
    "[https://www.imf.org/en/home](https://www.imf.org/en/home)"
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