Press Release No. 23/380

IMF Staff Completes 2023 Article IV Mission to the People’s Republic of China

November 7, 2023

• The Chinese economy is projected to grow at 5.4 percent in 2023, reflecting a strong post-COVID rebound. But growth is expected to slow in 2024 to 4.6 percent amid continuing weakness in the property market and subdued external demand.
• A strategy to contain the risks from the ongoing property sector adjustment and manage local government (LG) debt is needed to lift sentiment and boost near-term prospects. Supportive macroeconomic policies should complement these efforts.
• Broad-based and pro-market structural reforms aimed at boosting productivity, supporting rebalancing and decarbonization would support new engines of growth, and mitigate the negative effects of aging, diminishing returns on investment, and geoeconomic fragmentation.

Beijing, China – November 7, 2023: An International Monetary Fund (IMF) team, led by Ms. Sonali Jain-Chandra, Mission Chief for China, visited China from October 26 to November 7 to conduct discussions on the 2023 Article IV Consultation. The mission team held constructive discussions with senior officials from the government, the People’s Bank of China, private sector representatives, and academics to exchange views on economic prospects and risks, reform progress and challenges, and policy responses.

The IMF's First Deputy Managing Director, Ms. Gita Gopinath, joined the policy discussions and met with People’s Bank of China Governor Pan Gongsheng, China Securities Regulatory Commission (CSRC) Chairman Yi Huiman, National Bureau of Statistics Commissioner Kang Yi, Vice Minister of Commerce Wang Shouwen, Vice Minister of Finance Liao Min and EXIM Chairman WU Fulin, among other senior officials.

At the end of the visit, Ms. Gopinath issued the following statement:

“Over the last few decades, China has outpaced other nations at similar levels of development, growing at over 8 percent annually since 2000, significantly improving living standards, and eliminating extreme poverty. However, China’s credit-fueled growth in recent years was accompanied by widening imbalances and rising vulnerabilities. Excessively high household savings were used to finance infrastructure and residential investment with diminishing returns, resulting in elevated debt levels.”

“Rapid expansion in the property sector led to oversupply of housing in certain areas, while rising prices led to housing affordability pressures. The authorities’ goal to engineer the needed adjustment in the property market is welcome. The challenge is to minimize the economic costs and contain risks to the macrofinancial stability. Importantly, the recently concluded Central Financial Work Conference announced medium-term priorities, with a welcome focus on risks from the property sector, local government debt, and small and medium banks.”

“The Chinese economy is on track to meet the government’s 2023 growth target, reflecting a strong post-COVID recovery. Real GDP is projected to grow by 5.4 percent in 2023 and slow to 4.6 percent in 2024 amid continued weakness in the property sector and subdued external demand. These projections reflect upward revisions of 0.4 percentage points in both 2023 and 2024 relative to October WEO projections due to a stronger-than-expected Q3 outturn and recent policy announcements. Core inflation is projected to increase to 2.1 percent by end-2024 as output gap continues to narrow. Over the medium term, growth is projected to gradually decline to about 3½ percent by 2028 amid headwinds from weak productivity and population aging.”

“The authorities have introduced numerous welcome measures to support the property market, but more is needed to secure a quicker recovery and lower economic costs during the transition. A comprehensive policy package should include measures to accelerate exit of nonviable property developers, remove impediments to housing price adjustment, allocate additional central government funding for housing completion, and assist viable developers to repair balance sheets and adapt to a smaller property market.”

“In addition, the central government should implement coordinated fiscal framework reforms and balance sheet restructuring to address LG debt strains, including closing local government fiscal gaps and controlling the flow of debt, as well as developing a comprehensive restructuring strategy to reduce the debt level of local government financing vehicles.”

“Financial stability risks are elevated and still rising, as financial institutions have lower capital buffers and growing asset quality risks. To improve financial system resilience and mitigate risks, strict application of prudential policies and a strengthened framework for bank resolution are needed.”

“Supportive macroeconomic policies are needed to bolster activity amid the needed property sector adjustment and structural reforms to address local government debt. A reorientation of fiscal expenditures toward households and additional easing via interest rates would support growth and investment. Greater exchange rate flexibility would help absorb external shocks and strengthen monetary policy transmission.”

“With headwinds such as aging population, diminishing returns on investment, and geoeconomic fragmentation likely to constrain medium-term growth prospects, broad-based and pro-market structural reforms aimed at boosting productivity, supporting rebalancing and decarbonization would help support new engines of growth and foster a more balanced, inclusive, and green growth.”

“China continues to play a critical role in various initiatives at the WTO, and its efforts to restore a well-functioning dispute settlement mechanism are welcome.  China could demonstrate its commitment to an open and rules-based trading system and help reduce fragmentation pressures by scaling back distortions to trade and investment from domestic industrial policies and trade restrictions, which create domestic challenges and global spillovers.

“China’s growing leadership to address the global challenges, such as climate and debt crises, is vital for China and the world. China’s role in supporting debt restructuring in low-income and vulnerable countries is welcome and continued progress is needed for timely debt relief.”

The team would like to thank the authorities for excellent discussions, meticulous organization, and the warm hospitality extended to us throughout our visit.