Beijing, China: An International Monetary
Fund (IMF) team, led by Ms. Sonali Jain-Chandra, Mission Chief for China,
visited China from May 16 to 28 for the 2024 Article IV Consultation. The
team held constructive discussions with senior officials from the
government, the People’s Bank of China, private sector representatives, and
academics to exchange views on economic prospects, risks, reform progress,
and policy responses.
The IMF's First Deputy Managing Director, Ms. Gita Gopinath, joined the
policy discussions and met with People’s Bank of China (PBoC) Governor PAN
Gongsheng, Ministry of Finance (MOF) Vice Minister LIAO Min, Ministry of
Commerce (MOFCOM) Vice Minister WANG Shouwen, PBoC Deputy Governor XUAN
Changneng, National Financial Regulatory Administration (NFRA) Vice
Chairman XIAO Yuanqi, and EXIM President REN Shengjun, among other senior
officials.
At the end of the visit, Ms. Gopinath issued the following statement:
“China’s economic development over the past few decades has been
remarkable,driven by market-oriented reforms, trade liberalization
and integration into global supply chains. However, these achievements have
been accompanied by imbalances and rising vulnerabilities, and headwinds to
growth have emerged.
“Recognizing these challenges, the authorities have focused on
achieving high-quality growthby supporting innovation, especially
in green and high-tech sectors, upgrading financial sector regulations, and
introducing some policies to mitigate property and local government risks.
However, a more comprehensive and balanced policy approach would help China
navigate the headwinds facing the economy.
“China's economic growth is projected to remain resilient at 5 percent
in 2024 and slow to 4.5 percent in 2025.
Thesereflect upward revisions of
0.4 percentage points for both years compared to the April WEO projections,
driven by strong Q1 GDP data and recent policy measures.
Inflation is expected to rise but remain low
as output remains below potential
, with core inflation increase only gradually to
average 1 percent in 2024.
Over the medium term, growth is expected to decelerate to 3.3 percent
by 2029
due to aging and slower productivity growth. Furthermore, risks are tilted
to the downside, including a greater- or
longer-than-expectedproperty sector adjustment and increasing
fragmentation pressures.
“The ongoing housing market correction, which is necessary for
steering the sector towards a more sustainable path, should continue.The
authorities have implemented various welcome measures to guide the property
market transition, including recent policy announcements regarding lending
support for affordable housing. A
more comprehensive policy package would facilitate an efficient and
less costly transition while safeguarding against downside risks.
The priority should be to mobilize central government resources to protect
buyers of pre-sold unfinished homes and accelerate the completion of
unfinished presold housing, paving the way for resolving insolvent
developers. Allowing for greater price flexibility, while monitoring and
mitigating potential macro-financial spillovers, can further stimulate
housing demand and help restore equilibrium.
“ Near-term
macroeconomic policies should be geared to support domestic demand and
mitigate downside risks.
Fiscal policy should prioritize providing one-off central government
financial support for the real estate sector. Excluding the one-time
property sector package , a neutral fiscal stance in 2024
would balance the trade-offs between supporting domestic demand, mitigating
deflation risks, and managing unfavorable debt dynamics. The monetary
policy easing implemented so far in 2024 is welcome, but given
subdued inflation and output below potential,there is
scope for further easing.Greater exchange rate flexibility would
reduce deflation risks and help absorb external shocks.
"China faces significant fiscal challenges, especially for local
governments.Sustained fiscal consolidation over the medium term is
needed to stabilize debt, while restructuring the unsustainable debt of
local government financing vehicles can help reduce fiscal strains.
“To tackle elevated financial stability risks,the
authorities have appropriately focused on addressing vulnerabilities in the
property sector, local government debt, and smaller financial institutions.
Strengthening the bank resolution framework and strictly applying
prudential standards will help enhance financial stability and mitigate
risks.
“
Achieving high-quality growth will require structural reforms to
counter headwinds and address underlying imbalances.
Key priorities include rebalancing the economy towards consumption by
strengthening the social safety net and liberalizing the services sector to
enable it to boost growth potential and create jobs.
“China's use of industrial policies to support priority sectors can lead to
a misallocation of domestic resources and potentially affect trading
partners.
Scaling back such policies and removing trade and investment
restrictions
would raise domestic productivity and ease fragmentation pressures. In this
context,
China should continue its efforts to strengthen the multilateral
trading system,particularly the WTO.
“China plays an important and constructive role in supporting
debt restructuring in low-income and vulnerable countries and promoting
the green transition.
The Fund looks forward to continued cooperation with the authorities in
this regard.”
The team would like to thank the authorities for excellent discussions,
meticulous organization, and the warm hospitality extended to us
throughout our visit.
