(Yicai Global) Nov. 19 -- Downside risks to the International Monetary Fund’s forecast for China’s economy to expand 8 percent this year and 5.6 percent next year are “accumulating,” the Washington-based organization said in a statement.
“China’s recovery is well advanced, but is unbalanced and momentum is slowing, even as downside risks are accumulating,” the Washington-based IMF said in the press release put out yesterday following an annual consultation.
Between Oct. 28 and Nov. 10, a team from the IMF spoke by video conference with senior officials in the Chinese government and the People’s Bank of China as well as with representatives from the private sector and academics. The two sides exchanged views on China’s economic prospects and risks, reform progress and challenges, and policy responses.
“The slowdown is attributed to the rapid withdrawal of policy support and the lagging recovery of consumption amid recurrent Covid-19 outbreaks and lockdown measures,” IMF First Deputy Managing Director Geoffrey Okamoto said in the statement.
“Recent power outages and a slowdown in real estate investment related to the ongoing policy effort to reduce leverage in the property sector are also weighing on growth,” he said. “Regulatory tightening targeting technology sectors, while aimed at strengthening competition and data governance, has increased policy uncertainty.
“Short-term risks include continued pandemic uncertainty, consumption weakness, and elevated financial vulnerabilities,” Okamoto said. “Declining productivity growth, increased decoupling pressures, and a shrinking workforce pose longer-term headwinds to growth.”
In its World Economic Outlook report published last month, the IMF predicted that China’s gross domestic product would increase by 8 percent in 2021 and by 5.6 percent in 2022.
Okamoto said core inflation is expected to remain subdued and consumer price inflation should remain below the pre-pandemic target of about 3 percent despite high producer price inflation at the moment.
Supportive macroeconomic policies are needed to secure growth that is balanced, inclusive and green, the statement added, saying that shrinking financial vulnerabilities will help to protect the recovery, while faster structural reforms are the key to boosting productivity and maintaining high-quality growth over the long term.
‘Neutral Fiscal Stance’
“Fiscal policy, which has been significantly contractionary this year, should temporarily shift to a neutral stance and focus on strengthening social protection and promoting green investment over traditional infrastructure spending,” Okamoto said.
“Given low core consumer price inflation and still significant slack in the economy, monetary policy should be accommodative, which will also support the fiscal effort,” he said. “Further increasing exchange rate flexibility will help facilitate adjustment to changing external circumstances.”
Financial risks should be dealt with in a clear and coordinated fashion in order to protect stability, Okamoto said.
“Ongoing efforts to address high corporate leverage and phase out implicit guarantees for state-owned enterprises through regulatory strengthening should be accompanied by establishing market-based insolvency and resolution frameworks to safeguard financial stability and facilitate efficient credit reallocation and increase productivity,” he said. “A comprehensive bank restructuring approach is needed to strengthen the banking system and improve its capacity to support the recovery.”
Implementing additional key reforms -- including opening the home market further, reforming state-owned companies, and ensuring a level playing field for private firms while furthering green investment and fortifying social protection -- will buttress the shift to high-quality growth, Okamoto said.
Editors: Xu Wei, Peter Thomas