IMF growth outlook for China puts Xi’s income goal out of reach
THE International Monetary Fund expects China’s annual economic growth to slow to about half the rate seen in the past decade, likely putting President Xi Jinping’s long-term economic ambitions out of reach.
China’s gross domestic product is projected to increase at an average of about 4 per cent each year from now until 2027 before slowing to 3 per cent over the 10 years after that, the IMF said in a Friday (Feb 10) report. The forecasts imply GDP per capita, a measure of economic output per person, of “similar magnitude” over the same periods, it said.
The projections compare with an average of 7 per cent actual GDP growth in China over the last decade, according to the IMF’s report, which was compiled in late December. The average real per capita expansion over that time was 6 per cent.
Growth as slow as that would be troubling for Xi, who wants China’s per-capita GDP to reach that of a “medium-developed country” by 2035. Economists estimate that would mean the economy needs to grow on average 4.7 per cent annually in the 15 years through that time.
China faces a handful of chronic headwinds that are expected to impact growth, including its ageing population and slowing aggregate productivity, according to the IMF.
The staff team that prepared the report also singled out the country’s investment-driven expansion model, through which excessive funds are funnelled into state-owned enterprises and real estate. Focus on those less productive sectors have fuelled risks of public debt, it added.
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The growth outlook has been further clouded in the near term, by geopolitical tensions and increased global competition over technology ambitions, according to the report.
“Without reform efforts, ageing and declining productivity would likely continue to suppress growth over the long term, beyond our forecast horizon,” the IMF report said. “These pressing factors suggest the need to rebalance away from the investment-led, carbon-intensive, growth model towards more sustainable growth drivers, in particular consumption.”
The IMF report called on Chinese authorities to embrace market-based structural reforms and reallocate capital between the state-owned firms and private ones. It also encouraged a redistribution of funds from infrastructure and property into what it called more productive sectors such as manufacturing or services, along with urging for innovation in renewables.
Focusing fiscal measures on “targeted, means-tested” household income support would also help the economy rebalance, according to the report, which advocated for spending devoted toward areas that boost private consumption.
China is trying to get its economy back on track after GDP growth slowed last year to 3 per cent, the second-worst rate of expansion since the 1970s after 2020’s 2.2 per cent increase. Friday’s IMF report cited China’s Covid Zero curbs as contributing to a slowdown in consumption over that time.
Consumption this year is widely expected to drive the economic recovery now that Covid Zero has been abandoned, and given continued challenges that will weigh on growth from the property sector and slowing demand for exports.
The IMF report also expected monetary policy to be “somewhat accommodative,” and urged the central bank to continue to use interest rate policies as a primary management tool given their strong effects, rather than relying more on quantity-based credit policy options like window guidance and setting loan growth targets.
The People’s Bank of China has pledged to implement a “targeted and forceful” monetary policy to aid growth this year, though it has said it would avoid flooding the economy with stimulus.
The IMF forecasts China’s economy to grow 5.2 per cent this year, according to its World Economic Outlook published in January. BLOOMBERG
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