## China’s Post-Pandemic Growth: Deepening Reforms and Pursuing Rebalancing _IMF News, September 23, 2021_ ## Source details **Canonical URL:** [China’s Post-Pandemic Growth: Deepening Reforms and Pursuing Rebalancing](https://www.imf.org/en/news/articles/2021/09/23/sp092221-chinas-post-pandemic-growth-deepening-reforms) ## Other formats - [Markdown version](/en/news/articles/2021/09/23/sp092221-chinas-post-pandemic-growth-deepening-reforms/index.md) - [Structured JSON version](/en/news/articles/2021/09/23/sp092221-chinas-post-pandemic-growth-deepening-reforms/index.json) - [Bundle manifest](/en/news/articles/2021/09/23/sp092221-chinas-post-pandemic-growth-deepening-reforms/bundle-manifest.json) ## Bibliographic details - Authors: Geoffrey Okamoto - Published: September 23, 2021 --- ### Greetings - Opening: "Good morning—zao shang hao!" - Speaker: Geoffrey W.S. Okamoto, IMF First Deputy Managing Director. - Event: Forum on National Affairs, Counsellors’ Office of the State Council. - Date: September 22, 2021. ### Global economic outlook - First-half 2021 growth broadly in line with the July World Economic Outlook projection of "6 percent growth in 2021". - Recovery pattern: better-than-expected growth in Q1 2021 followed by loss of momentum in Q2 2021. - Near-term divergences and persistent fault lines from COVID-19 expected to leave lasting imprints on medium-term performance. - Vaccine access: widespread access mainly in advanced economies has helped contain deaths and hospitalizations and allowed greater normalization of economic activity; many emerging and developing economies with limited vaccine access continue to be held back. - Risks highlighted: - Potential for new virus variants to set back progress. - For emerging markets, faster-than-expected policy normalization in major economies could trigger adverse spillovers. - Inflation drivers: rise in commodity prices and supply disruptions preventing supply from keeping up with demand; price pressures expected to subside in 2022 for the most part; medium-term inflation expectations remain anchored to policy targets in most economies. - Scarring and vulnerabilities: - Long-lasting and severe consequences for poverty. - Public and private debt levels have risen substantially across economies, posing fiscal sustainability, investment, and growth challenges if not carefully managed. ### The recovery is taking hold (China-specific) - China growth stance: - Recovery has broadly converged to pre-pandemic trend levels. - IMF projection for China: "growth for 2021 at about 8.0 percent." - Current concerns: - Growth momentum is slowing; recovery could be more balanced with stronger private consumption. - Fiscal contraction: speed and magnitude of China’s fiscal contraction in H1 2021 was much faster and bigger than anticipated, contributing to growth slowdown. - Other temporary factors slowing growth: natural disasters, policy tightening across a range of sectors, and recurrent COVID outbreaks. - Recurrence of COVID flareups has produced a stop-and-go growth pattern; zero-COVID strategy and localized outbreaks hinder full recovery of private demand in services. - Policy near-term guidance: - Importance of continued vaccine development and distribution—especially critical in developing countries. - Macroeconomic policy calibration: as China has frontloaded consolidation efforts, recommend a "more neutral fiscal stance coupled with moderately supportive monetary policy" to slow the drag on growth and secure the handoff to private demand. ### Looking ahead beyond the recovery: structural challenges and rebalancing - Key headwinds to China’s growth identified: - An aging population. - Declining productivity growth amid pressures on globalization. - Pandemic-related setbacks in rebalancing toward high-quality growth (balanced, inclusive, and green). - Benefits of rebalancing toward consumption and services: - Shift from traditional investment to more consumption-led growth will decrease demand for heavy industrial goods and increase demand for consumer goods and services. - Welfare gains as a more service-oriented economy is more reliant on labor and likely to lift the labor share of income. - Climate benefits via reduced energy- and carbon-intensive heavy-industry leading to lower CO2 emissions. - Social protection recommendations to boost household consumption and inclusiveness: - Strengthen social protection to reduce precautionary savings. - Expand coverage and adequacy of social insurance programs—especially unemployment insurance—to support "common prosperity" objectives. ### Green growth and market reforms - Progress: some progress on climate goals and rollout of the national ETS (Emissions Trading System). - To unlock ETS potential, recommended market reforms in the power sector are needed to: - Pass on the carbon price to downstream sectors and consumers. - Incentivize power producers to adjust production and investments. - China’s role: leadership in global climate efforts, co-chairing the G20 Sustainable Finance Study Group, and cooperation with the EU on green investment standards contributing to a greener recovery. ### Productivity, market dynamism, and structural reform priorities - To raise productivity growth and promote market dynamism, recommended actions: - Re-accelerate SOE reforms. - Ensure competitive neutrality between all firms. - Further open up domestic markets. - Enhance digital platform competition via transparent and predictable approaches that preserve market efficiency and financial inclusion. - Policy design principles for new market entrants and regulation: - Provide clear and predictable regulatory frameworks. - Allow sufficient time for compliance. - Leave space for dialogue with a broad set of stakeholders. - Seek alignment with other countries where feasible to amplify benefits to global growth, employment, and technological advancement. - Expected outcomes: - More affordable services, improved manufacturing productivity through better service inputs, increased innovation and exports of best practice, and improved living standards for Chinese workers and households. ### Multilateral contributions and IMF support - China’s multilateral contributions noted: - Broadening access to vaccines. - Role in providing global debt relief for low-income countries. - Support for multilateral trade, including engagement on WTO reform. - Debt relief context: - Pandemic severity has worsened many countries' ability to service pre-crisis debt. - Resolving unsustainable debts will require full commitment and expeditious action by all creditors, public and private, to restore sustainable debt trajectories and enable borrowers to contribute to global prosperity. - IMF role and tools: - The IMF stands ready to support multilateral efforts. - New SDR allocation supplements countries’ reserves and uses the collective strength of the Fund’s membership to make "all 190 member countries a little stronger." - SDRs would provide liquidity support to many developing and low-income countries, allowing them to pay for healthcare and support vulnerable people. ### Conclusion - With the right combination of policies and collective efforts, global growth can be steered back on track and the future will look brighter. - Closing: "Thank you. Xièxiè." *Geoffrey W.S. Okamoto, "China’s Post-Pandemic Growth: Deepening Reforms and Pursuing Rebalancing", September 22, 2021, IMF.* --- ## References - [Geoffrey W.S. Okamoto](https://www.imf.org/en/About/senior-officials/Bios/geoffrey-w-s-okamoto/) - [People's Republic of China and the IMF](http://www.imf.org/external/country/CHN/index.htm) - [Speeches](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) _Source: https://www.imf.org/en/news/articles/2021/09/23/sp092221-chinas-post-pandemic-growth-deepening-reforms_