Press Release No. 18/200

IMF Staff Completes 2018 Article IV Mission to China

May 29, 2018

• China’s economic growth accelerated in 2017 and is expected to weaken only slightly in 2018 to 6.6 percent and moderate gradually to about 5½ percent by 2023.
• Staff welcome the authorities’ strategy to more decisively shift the policy focus from high-speed to high-quality growth. This will increase the benefits of growth for the Chinese people, as well make growth more sustainable.
• Achieving this goal would be greatly helped by accelerating reforms in many areas, including de-emphasizing growth target, further reining in credit growth, boosting consumption, allowing market forces a more decisive role, deepening opening up and modernizing policy frameworks.

An International Monetary Fund (IMF) team, led by Mr. James Daniel, Assistant Director of the Asia and Pacific Department, visited Beijing and Shenzhen from May 17 to 30, 2018, to conduct discussions on the annual Article IV review of the Chinese economy. The mission held highly constructive and candid discussions with senior officials from the government, the People’s Bank of China, private sector representatives, and academics to exchange views on economic prospects, reforms progress and challenges, and policy responses.

The IMF's First Deputy Managing Director, Mr. David Lipton, joined the concluding policy discussions and met with Vice Premier Liu He, People’s Bank of China Governor Yi Gang, Finance Minister Liu Kun, China Banking and Insurance Regulatory Commission (CBIRC) Chairman Guo Shuqing and China Securities Regulatory Commission (CSRC) Chairman Liu Shiyu, among other senior officials.

At the end of the visit, Mr. Lipton issued the following statement:

“The Chinese economy is performing well and reforms are making good progress. Our discussions in the past two weeks focused on the authorities' development and reform agenda to achieve its goal of high-quality growth and the importance of accelerating reforms in key areas.

“Economic growth accelerated in 2017 for the first time since 2010, driven by a cyclical rebound in global trade. This strength is expected to weaken only slightly in 2018. Staff project full-year 2018 growth at 6.6 percent and to moderate gradually to about 5½ percent by 2023.

“Reforms progressed in several key areas: financial sector de-risking accelerated, with a wide range of decisive measures adopted; credit growth slowed; overcapacity reduction progressed; anti-pollution efforts intensified; and opening up continued.

“We welcome the authorities’ strategy to more decisively shift the policy focus from high-speed to high-quality growth. In particular, shifting from excessive, debt-financed investment to consumption will sustain growth in an environment of rising living standards, a cleaner environment, and much reduced risks. We very much support this focus and we encourage the authorities to persevere.

“To be an effective and credible leader of better globalization, China should continue to address the distortions that still beset its economy and affect cross-border trade and investment. China would benefit from exposing sheltered sectors and firms to more domestic and foreign competition, ensuring a level playing field, and better protecting intellectual property rights. We encourage all parties to work cooperatively toward de-escalating trade tensions and to strengthen the multilateral trade and investment regime.

“Achieving this goal of high-quality growth requires building on the existing reform agenda and taking advantage of the current growth and reform momentum to ‘fix the roof while the sun is shining’. In particular, this requires:

• Following through on stated intentions to de-emphasize growth targets and focus on high-quality growth. Rebalancing the economy will likely mean somewhat slower overall growth. This should not be resisted, for example, with credit-fueled investment stimulus--this would make the debt problem worse and undermine growth later on.

• Continuing to rein in credit growth. While credit growth has slowed, it remains too fast. Slowing it further will require less public investment, tighter constraints on SOE borrowing, and curbing the rapid growth in household debt.

• Further boosting consumption. China needs to increase government social spending, for example on health, education, and social transfers, and finance it with progressive and green revenue sources like taxes on income, property and carbon emissions.

• Allowing market forces a more decisive role. This means reducing the dominance of the public sector in many industries, opening up more markets to the private sector, and ensuring fair competition. The importance of the private sector was reinforced by the IMF team’s visit to the dynamic and prosperous city of Shenzhen, where it has been private, not public, firms that have driven China’s global leadership in frontier industries such as e-commerce, fintech and hi-tech consumer goods.

• Accelerating opening up to the rest of the world. China’s integration with the global economy over the last 40 years has lifted China from one of the poorest countries in the world to now an upper-middle-income country, and world’s second largest economy.  Yet China’s trade and investment regime remains relatively restrictive. Faster opening up would not only support China’s own high-quality growth agenda, but also benefit the global economy. Recent efforts to defuse trade tensions are welcome and efforts should continue to seek a negotiated settlement that strengthens the global economy.

• Modernizing policy frameworks. Financial sector reforms have made strong progress recently—this should be continued, for example, by ensuring the new institutional structure of financial supervisors is a success. Monetary policy should continue to become more price, rather than quantity, based, and the exchange rate should continue to become more flexible. The central government should share more of local governments’ spending responsibilities while increasing their ability to raise their own revenues. Policymaking would also be improved by strengthening China’s relatively weak macroeconomic data.

“The Belt and Road Initiative is a welcome and potentially transformative initiative. Its success will be enhanced by having an overarching framework, with good coordination and due attention to debt sustainability in partner countries.

 “Given China’s record of successful reforms in the past decades, and the authorities’ strong commitment and determination, we are confident that China will rebalance to a sustainable growth model. We wish them the best of success in their efforts.

“We would like to thank the authorities in Beijing and Shenzhen for excellent discussions, meticulous organization, and the warm hospitality extended to us throughout the visit.”