IMF staff completed an Article IV mission in the People’s Republic of China in 2024
May 28, 2024
End-of-mission press releases include statements by IMF staff teams communicating preliminary conclusions after the country visit. The views expressed in this statement are those of IMF staff and do not necessarily represent those of the IMF Executive Board. Based on the preliminary findings of this mission, the staff will prepare a report which, after approval by management, will be submitted to the IMF Executive Board for discussion and decision.
- China’s economy is expected to grow by 5 percent in 2024 and 4.5 percent in 2025. These reflect upward revisions of 0.4 percentage points for both years compared to WEO’s April projections, driven by strong GDP data for 1 .quarters and recent policy measures. Core inflation is expected to rise but remain low as output remains below potential.
- Risks are tilted to the downside, including a larger or longer-than-expected adjustment in the real estate sector and increasing fragmentation pressures.
- The immediate priorities are to adopt a comprehensive policy package that will facilitate the adjustment of the real estate sector and provide adequate macroeconomic support to strengthen domestic demand and mitigate downside risks.
- Achieving high-quality growth will require far-reaching structural reforms. Key priorities include rebalancing the economy towards consumption by strengthening the social safety net, liberalizing the service sector and limiting disruptive supply-side policies that support manufacturing sectors.
Beijing, China: An International Monetary Fund (IMF) team led by Ms. Sonali Jain-Chandra, Head of Mission for China, visited China from 16 to 28 May for the 2024 Article IV Consultation. The team held constructive discussions with senior government officials, the People’s Bank of China, private sector representatives and academics to exchange views on economic prospects, risks, reform progress and policy responses.
IMF First Deputy Managing Director Ms. Gita Gopinath joined policy discussions and met with People’s Bank of China (PBoC) Governor PAN Gongsheng, Deputy Minister of Finance (MOF) LIAO Min, Deputy Minister of Commerce (MOFCOM) WANG Shouwen, Vice Governor PBoC XUAN Changneng, National Financial Regulatory Authority (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 successes have been accompanied by imbalances and growing vulnerabilities, and headwinds to growth have emerged.
“The authorities were aware of these challenges and focused on achieving high-quality growthby promoting innovation, especially in the green and high-tech sectors, modernizing the regulation of the financial sector and introducing some policies to mitigate the risks associated with real estate and local governments. However, a more comprehensive and balanced policy approach would help China overcome the headwinds the economy is facing.
“China’s economic growth is expected to remain resilient at 5 percent in 2024 and slow to 4.5 percent in 2025.
Thesethey reflect upward revisions of 0.4 percentage points for both years compared to WEO’s April projections, driven by strong Q1 GDP data and recent policy actions.
Inflation is expected to rise but remain low
as the output remains below potential
, with core inflation rising only slowly to an average of 1 percent in 2024.
In the medium term, growth is expected to slow to 3.3 percent by 2029
due to aging and slower productivity growth. In addition, the risks are tilted to the downside, including a larger or longer than expectedaccommodation of the real estate sector and increasing pressures for fragmentation.
“The ongoing correction in the housing market, which is necessary to set the sector on a more sustainable path, should continue.The authorities have introduced various welcome measures to streamline the transformation of the real estate market, including recent policy announcements regarding the promotion of loans for affordable housing. AND
a more comprehensive policy package would facilitate an efficient and less costly transition while protecting against downside risks.
The priority should be to mobilize central government resources to protect buyers of pre-sold under-construction houses and speed up the completion of unfinished pre-sold apartments, paving the way to address developers’ insolvency. Allowing more price flexibility while monitoring and mitigating potential macro-financial spillovers can further stimulate housing demand and help rebalance.
” Near term
macroeconomic policies should be aimed at supporting domestic demand and mitigating downside risks.
Fiscal policy should prioritize the provision of one-time central government financial support to the real estate sector. With the exception of the one-time package for the real estate sector neutral fiscal stance in 2024
would balance the trade-offs between supporting domestic demand, mitigating deflation risks and managing adverse debt dynamics. The easing of monetary policy carried out in 2024 is welcome, but Geven subdued inflation and output below potential,there is room for further relaxation.Greater exchange rate flexibility would reduce the risks of deflation and help absorb external shocks.
“China faces significant fiscal challenges, especially for local governments.Sustained fiscal consolidation is needed in the medium term to stabilize debt, while restructuring the unsustainable debt of local government financing instruments can help reduce fiscal strain.
“Increased to deal with financial stability risks,the authorities have appropriately focused on addressing vulnerabilities in the real estate sector, local government indebtedness and smaller financial institutions. Strengthening the framework for bank resolution and strict enforcement of prudential standards will help improve 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 service sector to increase 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.
Limiting such policies and removing trade and investment restrictions
would increase domestic productivity and alleviate fragmentation pressures. In this context,
China should continue its efforts to strengthen the multilateral trading system,especially the WTO.
“China plays an important and constructive role in supporting debt restructuring in low-income and vulnerable countries and in supporting the green transition.
The Fund looks forward to further cooperation with the authorities in this regard.“
The team would like to thank the authorities for the excellent discussions, careful organization and warm hospitality they provided us during our visit.
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