China property risks to economy can be contained, IMF says

[BEIJING] China should be able to contain the economic impact of financial strains experienced by real-estate developers but needs to step-up fiscal support for its slowing economy, the International Monetary Fund said.

Downside risks to the IMF's forecast of 8 per cent growth in China this year and 5.6 per cent in 2022 "are accumulating" due to factors such as "pandemic uncertainty" and weak consumption, the IMF said in a press release following an annual survey of the world's second-largest economy.

China's growth in recent months has slowed to rates not seen since 1990, largely due to curbs on financing to property developers. But the IMF said the economic impact of property curbs which have pushed developers such as China Evergrande close to bankruptcy would be limited.

"Policy makers have the tools to keep this contained so there is no reason for this risk to become broader or have ramifications at the macro level for housing demand and investment," Helge Berger, mission chief for China and assistant director of the Asia and Pacific Department, told Bloomberg News.

China's fiscal spending has been tighter this year than in 2020, dragging on economic growth as Beijing focuses on trying to curb local government debt, while key elements of monetary policy such as policy interest rates have remained unchanged since last year.

"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," said Geoffrey Okamoto, IMF First Deputy Managing Director. Because consumer price inflation is low and "significant slack" remains in the economy, "monetary policy should be accommodative, which will also support the fiscal effort," he added.

The IMF also called on China to distribute more of its domestically-made vaccines beyond its borders. "China can help end the pandemic crisis and secure an inclusive and green recovery by continuing its Covid-19 vaccine distribution," Okamoto said.

BLOOMBERG