‘Resilient growth’ in China’s economy, IMF concludes

China is showing ‘resilient economic growth’ boosted by the ‘post-pandemic recovery in private consumption’, according to a new report from the International Monetary Fund (IMF).

The report said China’s GDP increased by 5.2% in 2023, growing 5% year-on-year in the first half of 2024. It said the economy has remained resilient despite the property sector experiencing ongoing difficulties.

In the light of China’s economic data from the first quarter of 2024, the IMF has raised its forecast for the nation’s annual economic growth to 5% this year, an upward revision of 0.4 percentage points compared with the projections released in the IMF’s ‘World Economic Outlook’ report in April.

This expectation aligns with the Chinese government’s goal, announced earlier this year, of reaching around 5% economic growth in 2024.

The IMF said that such growth has been “primarily driven by strong public investment and the post-Covid recovery in private consumption, with net exports also providing a boost more recently”.

However, it said inflation has been low in recent quarters amid continued economic slack. “Looking ahead, growth is projected to be broadly in line with the government’s target in 2024, and inflation is expected to pick up gradually as the output gap closes and the impact of lower commodity prices wanes,” the IMF report said.

It added that while there is uncertainty in China’s economic outlook, “decisive policy action to facilitate adjustment in the property sector or market-oriented structural reforms could boost confidence and lead to better-than-expected economic outcomes”.

The IMF also, however, emphasised risks from the ongoing adjustment in the property market and issues with local government debt.

Accordingly, China’s macroeconomic policies should support domestic demand in the short term, according to the report.

The IMF also highlighted that a balanced policy approach and pro-market structural reforms “would be necessary to foster high-quality, green growth in the medium term”.

The IMF also recommended that China adopt a neutral fiscal stance in 2024 to boost consumer confidence and domestic demand, with a shift toward household support and a more progressive tax regime. They suggested reducing the fiscal deficit starting in 2025 and emphasized the need for fiscal consolidation and reforms to stabilize public debt.

It also highlighted China’s ‘constructive role’ in addressing global challenges, such as supporting debt restructuring in low-income countries and tackling climate change.

The Chinese government recently issues a statement outlining plans to enhance the role of market mechanisms to create “a fairer and more dynamic market environment”.

The plans include lifting market restrictions while ensuring effective regulation to maintain market order and address market failures. “These efforts aim to balance market freedom with necessary oversight to promote economic growth and stability,” it said.

“We will implement various measures for preventing and defusing risks in real estate, local government debt, small and medium-sized financial institutions, and other key areas,” the communique said.

Each year, an IMF team visits China and other countries to collect economic and financial data and discuss with officials of each country their economic developments and policies.

 

China looks to extend free trade network

China is set to expand its free trade zone network, with a focus on accelerating its accession to the Comprehensive and Progressive Agreement for Trans-Pacific Partnership (CPTPP) by advancing negotiations with multiple countries, the Ministry of Commerce has said.

Li Yongjie, the ministry’s deputy International Trade Representative, said China will continue to engage in bilateral consultations to drive forward the country’s entry into the bloc.

The country is also committed to upgrading free trade agreements (FTAs) with countries such as Honduras, El Salvador and New Zealand, Li said. Furthermore, China will intensify efforts to promote the China-Japan-Korea FTA.

The goal is to conclude FTAs with more willing countries and regions, aiming to increase the trade volume with FTA partners to around 40% of China’s total foreign trade by 2030, Li said.