## Press Briefing 2021 China Article IV

_IMF News, January 29, 2022_

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## Bibliographic details
- Published: January 29, 2022

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### Principal takeaways (Helge Berger’s three key messages)
- The Chinese economy is slowing down; macroeconomic policy should adjust to protect growth.
  - Monetary policy has moved toward accommodation, including recent policy rate reductions.
  - Fiscal policy remains in consolidation mode and is subtracting from growth; IMF recommends a neutral fiscal stance in 2022.
- Rebalancing away from investment and toward consumption will raise growth quality and help meet climate goals.
  - Consumption is generally less carbon intensive than investment.
  - Rebalancing can get China "15 percent closer to achieving its climate goals" than not rebalancing.
  - Fiscal support should prioritize low-income households now and lay groundwork for strengthening social protection long term.
- China faces a pronounced productivity slowdown.
  - Aggregate total factor productivity (TFP) growth averaged "0.7 percent" per year over the last 10 years.
  - This contrasts with "3.5 percent" TFP growth in the 10 years prior.
  - Recommendations include reaccelerating SOE reform and implementing "competitive neutrality" reforms so private firms can compete on equal footing with state-owned enterprises.

### Growth outlook and macro policy recommendations
- IMF view on policy stance:
  - Monetary: remain accommodative in 2022 given low inflation and slack; welcome recent policy rate and borrowing-cost reductions and LPR adjustments.
  - Fiscal: shift from consolidation to neutral stance in 2022 to avoid further subtraction from growth.
- Fiscal composition and targeting:
  - Short-term: direct support to low-income households to boost consumption.
  - Medium/long-term: improve social protection (social insurance, medical benefits, unemployment insurance, social assistance, pension reform) to lower household precautionary savings and support consumption-led growth.
- Risks and monitoring:
  - Watch for worsening growth momentum; be prepared to provide additional macro support if needed.

### Property sector: stresses, contagion risk, and policy guidance
- Current situation:
  - Significant stress among developers (Evergrande noted as the starting point), with spillovers to other developers and potential contagion to the financial system and broader economy.
- Short-term policy priorities:
  - Intensify surveillance of developers and lenders; assess pressure points and interlinkages.
  - Strengthen central government coordination of policy responses; improve policy communication.
  - Ensure timely completion of pre-sold housing to restore confidence.
  - Facilitate swift restructuring of troubled developers with differentiation between viable and non-viable firms; provide liquidity/support to viable developers.
- Medium-to-long-term priorities:
  - Strengthen macroprudential and real estate policies to limit demand-driven risks and address pre-sale practices.
  - Continue strengthening bankruptcy processes for non-financial corporates.

### COVID containment policy and economic impact
- Zero COVID measures initially effective in 2020–2021 but, since roughly last summer, outbreaks became more frequent and containment measures more frequent.
- More frequent containment reduced consumption and contributed to a downgraded 2022 forecast.
- Policy implications:
  - Recalibrate and fine-tune containment measures to reduce disruption.
  - Improve vaccine coverage and public-health resilience to reduce economic impact of outbreaks.

### Capital flows, RMB exchange rate, and internationalization
- Impact of rising U.S. rates on China:
  - IMF judges the impact would be small because China’s capital account is "still mostly closed" and structural inflows dominate; flows are relatively slow.
- Exchange rate view:
  - Renminbi movements have reflected changing macro positions during the pandemic (weakened during China’s early lockdown; later appreciated).
  - IMF encourages continued exchange rate flexibility; fundamentals determine international currency use.
- CBDC (e-CNY):
  - China is advanced in CBDC pilots, including cross-border experiments.
  - IMF: determinants of currency international use remain fundamentals (capital account openness, convertibility, trade invoicing); e-CNY alone unlikely to substantially change RMB’s international role without broader reforms.

### Structural challenges: productivity, regulation, and technology sector uncertainty
- Productivity:
  - Aggregate TFP slowdown from "3.5 percent" to "0.7 percent" average annual growth across decades is a major headwind, especially as the workforce has stopped growing.
  - Policy priority: deepen market-oriented reforms (SOE reform, competitive neutrality) to boost productivity.
- Regulatory environment and policy uncertainty:
  - Recent regulatory tightening in the technology sector increased policy uncertainty for firms.
  - IMF stance: regulation to ensure fair competition and consumer protection can be appropriate, but must be implemented transparently and predictably to preserve efficient market operations.
- International economic relationship:
  - Decoupling in trade and FDI, particularly in technology, could harm productivity and growth in both China and partner economies; IMF encourages resolving issues within multilateral, rules-based frameworks.

### Climate strategy and green transition
- China has set ambitious climate goals; implementation is the critical next step.
- Policy recommendations to minimize tradeoffs with growth:
  - Accelerate rebalancing toward consumption to achieve a double dividend (higher-quality growth and lower carbon intensity).
  - Strengthen and price carbon via the emissions trading system (ensure firms pay for CO2 allocations and that prices influence investment decisions).
  - Reform power-sector incentives and expand market-based policies across sectors.
  - Expand green finance to mobilize investment for the transition.
- Timing: greater early action and reforms make the transition more affordable and reduce growth tradeoffs over time.

### Other discussion points from the briefing
- Surveillance and communication:
  - IMF staff emphasized the importance of intensified monitoring (developers, lenders) and better central coordination and communication of policy responses.
- Hong Kong-related questions:
  - IMF noted a separate Article IV for Hong Kong is being finalized; related questions about Hong Kong’s developments will be addressed in that report.
- Administrative details and context:
  - Press briefing date: January 28, 2022.
  - Press officer: Ting Yan; Phone: +1 202 623-7100; Email: MEDIA@IMF.org.
  - Embargo reminder cited in the briefing: embargo until "3 a.m. Washington, D.C. time which will be 4 p.m. Friday, Beijing time."

*Transcript of IMF press briefing on the 2021 China Article IV Staff Report (January 28, 2022).*

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## References

- [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)

_Source: https://www.imf.org/en/news/articles/2022/01/29/tr012722-press-briefing-2021-china-article-iv_