IMF Executive Board Concludes 2022 Article IV Consultation with the People’s Republic of China
February 3, 2023
Washington, DC : The Executive Board of the International Monetary Fund (IMF) concluded the Article IV consultation [1] with the People’s Republic of China.
Following an impressive recovery from the initial impact of the pandemic, China’s growth slowed significantly in 2022. It remains under pressure as more transmissible variants have led to recurring outbreaks that have dampened mobility, the real estate crisis remains unresolved, and global demand has slowed. Real estate investment has contracted by about one-fifth in the first eleven months of 2022 amid intensifying financial stress among developers. Growth is projected at 2.6 percent for 2022, improving to 4.2 percent in 2023 [2] as the full lifting of COVID containment measures is expected to eventually boost private demand. Near-term price pressures are expected to remain muted as the output gap closes only gradually and sectoral demand-supply imbalances are expected to remain small despite re-opening. The current account surplus is expected to narrow to 1.3 percent of GDP in 2023 from 2.1 percent in 2022 on the back of weaker growth in main trading partners, relatively lower spending on durable goods in advanced economies, and a gradual resumption of Chinese overseas travel.
In response to slowing growth momentum, macroeconomic policies appropriately turned expansionary in 2022. On the fiscal side, the main measures included a series of tax and other relief measures for small and medium-sized enterprises (SMEs) and spending on infrastructure investment projects, with the augmented cyclically-adjusted primary deficit being estimated to have increased by 2.2 percentage points of potential GDP. Monetary policy has become moderately accommodative following modest interest rate-based easing measures, cuts to the reserve requirement ratio, adjustments to deposit rate guidance policies that have helped lower deposit rates, and the use of credit policies to steer credit to SMEs and other borrower segments. The authorities have steadily stepped up support measures for the property sector, but much-needed developer restructuring continues to be slow.
Structural policy trends are clouding medium-term growth prospects amid weak productivity growth, in large part because of the role of low-productivity state-owned enterprises (SOEs) and declining business dynamism. Reforms securing competitive neutrality between SOEs and privately owned firms have been lacking, while SOEs are being tasked to make advances in strategically important sectors and technologies affected by growing geoeconomic fragmentation pressures, further burdening them with responsibilities. While China is a world leader in renewable energy, the unbalanced recovery and extreme weather events have made the achievement of near-term climate goals more challenging.
Executive Board Assessment [3]
Executive Directors noted that, following an impressive economic recovery from the initial impact of the pandemic, growth in China has slowed amid recurring COVID outbreaks, the contraction in the real estate sector, and weakened global demand. In this context, Directors called for macroeconomic and health policies to support the economy in the near term and for growth-enhancing reforms to secure high-quality—balanced, inclusive, and green—growth in the medium term.
Directors agreed that fiscal policy should bolster the recovery and facilitate economic rebalancing, with fiscal support geared toward households and by efforts to further strengthen the social protection system. They recommended that monetary policy also remain accommodative, given currently low CPI inflation and negative output gap and to support the adjustment in the property sector. While a number of Directors acknowledged the authorities’ preference for using a mix of quantitative and price instruments, Directors encouraged more reliance on interest rate-based measures to increase the effectiveness of monetary policy. Many Directors welcomed the authorities’ commitment to increasing exchange rate flexibility, which should help the economy absorb shocks. Given the recent loosening of COVID-related restrictions, Directors recommended re-accelerating vaccinations and further scaling up health care capacity.
Directors welcomed the authorities’ stepped-up efforts to contain the financial stress in the property sector. They stressed the need to pave the way for market-based restructurings and restoring homebuyer confidence. Directors also recommended structural reforms to gradually bring the property sector to a more sustainable size over the medium term. They emphasized that stronger prudential policies for the banking sector will help identify vulnerabilities, while upgrades to restructuring frameworks would help facilitate exit of nonviable firms and banks while protecting financial stability. Directors welcomed the authorities’ continued efforts to strengthen the AML/CFT framework and looked forward to further improvements in this area.
Directors stressed that structural reforms are key to raise productivity growth; in particular, by ensuring competitive neutrality between private and state-owned firms, removing local protectionism, and through a greater reliance on market forces. To support the implementation of China’s climate agenda, Directors highlighted the need to implement market-based reforms to the power sector. They also noted that further development of climate finance could provide additional impetus to the transition toward a carbon-neutral economy. Directors emphasized that addressing remaining macroeconomic data gaps would enhance data transparency and strengthen policy making.
Directors underscored that China, together with other countries, can play a leading role in multilateral efforts to tackle global challenges, including seeking collaborative solutions to address geoeconomic fragmentation, alleviating debt burden in economies in debt distress—with the recent agreement reached by Chad and its creditors under the Group of 20 Common Framework being a positive first step—, strengthening global trade openness and transparency, and confronting climate change.
[1] Under Article IV of the IMF's Articles of Agreement, the IMF holds bilateral discussions with members, usually every year. A staff team visits the country, collects economic and financial information, and discusses with officials the country's economic developments and policies. On return to headquarters, the staff prepares a report, which forms the basis for discussion by the Executive Board.
[2] The projections presented in the Press Release were based on information available as of January 9, 2023. See the IMF country page for latest projections.
[3] At the conclusion of the discussion, the Managing Director, as Chairman of the Board, summarizes the views of Executive Directors, and this summary is transmitted to the country's authorities. An explanation of any qualifiers used in summings up can be found here: http://www.IMF.org/external/np/sec/misc/qualifiers.htm
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China: Selected Economic Indicators |
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|
2017 |
2018 |
2019 |
2020 |
2021 |
2022 |
2023 |
2024 |
2025 |
2026 |
2027 |
|
|
Projections |
|||||||||||
|
(Annual percentage change, unless otherwise indicated) |
|||||||||||
|
NATIONAL ACCOUNTS |
|||||||||||
|
Real GDP (base=2015) |
6.9 |
6.7 |
6.0 |
2.2 |
8.1 |
2.6 |
4.2 |
5.1 |
4.1 |
4.0 |
3.8 |
|
Total domestic demand |
6.8 |
7.4 |
5.3 |
1.7 |
6.6 |
2.0 |
4.3 |
5.3 |
4.3 |
4.1 |
3.9 |
|
Consumption |
7.2 |
7.9 |
6.3 |
-0.3 |
9.8 |
1.6 |
4.7 |
5.3 |
4.3 |
4.2 |
3.9 |
|
Fixed investment |
6.2 |
7.3 |
5.3 |
3.4 |
3.5 |
2.4 |
4.0 |
5.3 |
4.3 |
4.0 |
4.0 |
|
Net exports (contribution) |
0.3 |
-0.5 |
0.7 |
0.6 |
1.7 |
0.6 |
0.1 |
0.0 |
0.0 |
0.0 |
0.0 |
|
Total capital formation (percent of GDP) |
43.2 |
44.0 |
43.1 |
42.9 |
42.8 |
43.5 |
43.4 |
43.2 |
42.9 |
42.6 |
42.3 |
|
Gross national saving (percent of GDP) 1/ |
44.7 |
44.1 |
43.8 |
44.5 |
44.6 |
45.6 |
44.7 |
44.4 |
43.8 |
43.3 |
42.8 |
|
Output gap estimate |
-0.6 |
-0.5 |
-1.0 |
-3.6 |
-1.5 |
-2.8 |
-2.4 |
-1.3 |
-0.7 |
-0.3 |
0.0 |
|
LABOR MARKET |
|||||||||||
|
Unemployment rate (annual average) 2/ |
5.0 |
4.9 |
5.2 |
5.6 |
5.1 |
5.5 |
… |
… |
… |
… |
… |
|
PRICES |
|||||||||||
|
Consumer prices (average) |
1.6 |
2.1 |
2.9 |
2.5 |
0.9 |
1.9 |
1.5 |
1.7 |
2.0 |
2.0 |
2.0 |
|
Consumer prices (end of period) |
1.8 |
1.9 |
4.5 |
0.2 |
1.5 |
1.9 |
1.9 |
1.7 |
2.0 |
2.0 |
2.0 |
|
GDP Deflator |
3.9 |
3.5 |
2.1 |
1.3 |
2.7 |
3.0 |
-0.2 |
1.1 |
1.4 |
1.3 |
1.3 |
|
FINANCIAL |
|||||||||||
|
7-day repo rate (percent) |
5.4 |
3.1 |
3.1 |
2.6 |
2.5 |
… |
… |
… |
… |
… |
… |
|
10 year government bond rate (percent) |
3.7 |
3.0 |
3.9 |
3.3 |
2.8 |
... |
... |
... |
... |
... |
... |
|
Real effective exchange rate (average) |
-4.7 |
-2.9 |
1.4 |
-0.6 |
2.0 |
… |
… |
… |
… |
… |
… |
|
Nominal effective exchange rate (average) |
9.7 |
-5.4 |
-2.5 |
1.5 |
5.4 |
… |
… |
… |
… |
… |
… |
|
MACRO-FINANCIAL |
|||||||||||
|
Total social financing |
14.1 |
10.3 |
10.7 |
13.3 |
10.3 |
10.3 |
8.9 |
7.6 |
6.6 |
6.3 |
6.1 |
|
In percent of GDP |
248 |
248 |
254 |
278 |
276 |
288 |
302 |
305 |
308 |
311 |
314 |
|
Total nonfinancial sector debt 3/ |
14.4 |
10.8 |
10.8 |
13.2 |
10.4 |
10.4 |
9.2 |
7.8 |
6.8 |
6.4 |
6.2 |
|
In percent of GDP |
248 |
248 |
254 |
278 |
277 |
284 |
295 |
301 |
305 |
308 |
311 |
|
Domestic credit to the private sector |
10.9 |
8.6 |
8.7 |
10.9 |
8.5 |
8.3 |
6.2 |
4.7 |
3.5 |
3.3 |
3.3 |
|
In percent of GDP |
164 |
161 |
162 |
173 |
170 |
174 |
177 |
175 |
171 |
168 |
165 |
|
Household debt (percent of GDP) |
48.9 |
52.3 |
55.8 |
61.6 |
62.5 |
61.1 |
60.7 |
60.6 |
60.4 |
60.8 |
61.6 |
|
Non-financial corporate domestic debt (percent of GDP) |
115 |
109 |
106 |
112 |
107 |
113 |
117 |
114 |
111 |
107 |
104 |
|
GENERAL BUDGETARY GOVERNMENT (Percent of GDP) |
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|
Net lending/borrowing 4/ |
-3.4 |
-4.3 |
-6.1 |
-9.7 |
-6.1 |
-9.5 |
-7.7 |
-7.6 |
-7.4 |
-7.3 |
-7.2 |
|
Revenue |
29.2 |
29.0 |
28.1 |
25.7 |
26.8 |
25.1 |
26.0 |
26.1 |
26.2 |
26.4 |
26.5 |
|
Additional financing from land sales |
2.5 |
2.8 |
2.9 |
2.5 |
2.3 |
1.4 |
1.4 |
1.3 |
1.2 |
1.2 |
1.1 |
|
Expenditure |
35.1 |
36.1 |
37.1 |
37.9 |
35.2 |
36.0 |
35.1 |
35.0 |
34.9 |
34.8 |
34.8 |
|
Debt |
36.2 |
36.5 |
38.5 |
45.4 |
47.2 |
51.0 |
55.1 |
57.9 |
60.9 |
63.8 |
66.7 |
|
Structural balance |
-3.2 |
-4.1 |
-5.8 |
-8.8 |
-5.7 |
-8.7 |
-7.0 |
-7.2 |
-7.3 |
-7.2 |
-7.2 |
|
BALANCE OF PAYMENTS (Percent of GDP) |
|||||||||||
|
Current account balance |
1.5 |
0.2 |
0.7 |
1.7 |
1.8 |
2.1 |
1.3 |
1.2 |
1.0 |
0.7 |
0.5 |
|
Trade balance |
3.9 |
2.7 |
2.7 |
3.4 |
3.2 |
3.8 |
3.6 |
3.6 |
3.4 |
3.2 |
3.0 |
|
Services balance |
-2.1 |
-2.1 |
-1.8 |
-1.0 |
-0.6 |
-0.8 |
-1.7 |
-1.8 |
-1.8 |
-1.8 |
-1.7 |
|
Net international investment position |
16.8 |
15.2 |
16.0 |
15.4 |
11.2 |
12.1 |
12.9 |
13.1 |
13.1 |
12.9 |
12.5 |
|
Gross official reserves (billions of U.S. dollars) |
3,236 |
3,168 |
3,223 |
3,357 |
3,427 |
3,277 |
3,339 |
3,410 |
3,472 |
3,511 |
3,526 |
|
MEMORANDUM ITEMS |
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|
Nominal GDP (billions of RMB) 5/ |
82,898 |
91,577 |
99,071 |
102,563 |
113,818 |
120,215 |
125,018 |
132,933 |
140,340 |
147,811 |
155,411 |
|
Augmented debt (percent of GDP) 6/ |
77.9 |
80.8 |
86.3 |
98.8 |
101.4 |
109.6 |
120.5 |
127.4 |
134.4 |
140.9 |
146.9 |
|
Augmented net lending/borrowing (percent of GDP) 6/ |
-13.0 |
-11.4 |
-12.4 |
-18.4 |
-13.8 |
-16.8 |
-16.7 |
-15.6 |
-15.1 |
-14.6 |
-14.1 |
|
Sources: Bloomberg; CEIC Data Company Limited; IMF International Financial Statistics database; and IMF staff estimates and projections. |
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1/ 2021 GDP will be revised to match official revisions, once full official data are released. |
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2/ Surveyed unemployment rate. |
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3/ Includes government funds. |
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4/ Adjustments are made to the authorities' fiscal budgetary balances to reflect consolidated general budgetary government balance, including government-managed funds, state-administered SOE funds, adjustment to the stabilization fund, and social security fund. |
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5/ Production side nominal GDP. |
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6/ The augmented balance expands the perimeter of government to include government-guided funds and the activity of local government financing vehicles (LGFVs). |
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IMF Communications Department
MEDIA RELATIONS
PRESS OFFICER: Ting Yan
Phone: +1 202 623-7100Email: MEDIA@IMF.org