IMF Executive Board Concludes 2023 Article IV Consultation with the People’s Republic of China
February 2, 2024
Washington, DC: The Executive Board of the International Monetary Fund (IMF) concluded the Article IV consultation [1] with the People’s Republic of China on January 10, 2024.
China’s economic activity rebounded in 2023 following the post‑COVID reopening with real GDP estimated to have grown broadly in line with the authorities’ growth target of around 5 percent. The recovery was driven by domestic demand, particularly private consumption, and assisted by supportive macroeconomic policies, including further relaxation of monetary policy, tax relief for firms and households, and fiscal spending on disaster relief. [2] Looking ahead, growth is projected to slow to 4.6 percent in 2024 amid the ongoing weakness in the property sector and subdued external demand. Over the medium term, growth is projected to gradually decline further and is projected at about 3½ percent in 2028 amid headwinds from weak productivity and population aging. While inflation fell in 2023 largely on account of lower energy and food prices, it is expected to increase gradually to 1.3 percent in 2024 as the output gap narrows and the base effects of commodity prices recede.
Uncertainty surrounding the outlook is high, particularly given the existing large imbalances and associated vulnerabilities. Deeper-than-expected contraction in the property sector could further weigh on private demand and worsen confidence, amplify local government fiscal strains, and result in disinflationary pressures and adverse macro‑financial feedback loops. Greater-than-expected weakening of external demand, tightening of global conditions, and increased geopolitical tensions also pose considerable downside risks. On the upside, decisive policy action, including faster restructuring in the property sector, could boost confidence and lead to a better‑than‑expected rebound in private investment.
Executive Board Assessment[3]
Executive Directors agreed with the thrust of the staff appraisal. They welcomed China’s strong post pandemic recovery, while noting that the ongoing adjustment in the property market and strains in local government public finance will continue to weigh on private investment and consumer confidence. Directors concurred that continued macroeconomic support and pro market structural reforms are needed to mitigate downside risks and boost prospects for high quality, green, and balanced growth.
Directors welcomed the authorities’ efforts to contain risks from the property market and underscored the need for additional measures in a comprehensive, well sequenced strategy to facilitate a smooth transition of the property sector to a new equilibrium. They called for accelerating exit of nonviable property developers, allocating additional funding for housing completion, assisting viable developers to repair their balance sheets and adapt to a smaller property market, and allowing for greater market‑based price adjustment.
Directors emphasized the need to close local government fiscal gaps and contain their debt risks and welcomed the authorities’ policy package in this regard. Directors highlighted the importance of progressive tax reforms, public financial management reforms, and improved risk sharing between the local and central government. They noted that reducing the stock of local government debt would require greater use of insolvency tools and enhancements in the financial safety net.
Directors welcomed the authorities’ focus on risk prevention and control in the financial system. They recommended strengthening and strictly applying prudential policies and removing forbearance measures to incentivize the recognition of nonperforming assets. They underscored that a strategy to address weak banks and strengthen the legal framework for bank resolution, along with measures to enhance the financial safety net and crisis preparedness capacity, would safeguard macro financial stability. In this context, Directors welcomed the authorities’ commitment to strengthen financial regulation and supervision. They also suggested continuing to strengthen the AML/CFT framework.
Directors agreed that macroeconomic policies should support activity in the near term. They recommended a budget neutral reorientation of expenditures toward households to support consumption, and additional monetary easing via interest rates, as well as reforms to the monetary policy framework to enhance transmission. Greater exchange rate flexibility would help absorb external shocks and improve monetary policy transmission.
Directors welcomed the authorities’ emphasis on more sustainable drivers of quality growth and their commitment to ensuring a level playing field to attract investment. They recommended lowering barriers to firm entry and exit, accelerating SOE reforms, and relying more on market‑based allocation of resources to boost productivity and potential growth. They underscored that expanding the social safety net would durably reduce the need for precautionary savings and support safer and more balanced growth. Strengthening labor market and education policies would also be important to boost productivity growth. Directors welcomed the authorities’ strong commitment to achieving carbon neutrality and the efforts they are making toward this end. They looked forward to the continued implementation of their climate policies.
Directors highlighted China’s role in advancing multilateral economic cooperation and welcomed its support for sovereign debt restructuring in low income and vulnerable countries and addressing the global climate crisis. Directors emphasized China’s key role in strengthening the multilateral trading system. They generally agreed that scaling back the use of industrial policies and trade restrictions would be important to avoid cross border spillovers and help lessen fragmentation pressures.
Directors emphasized that addressing remaining data gaps would help enhance data transparency and facilitate policy making.
It is expected that the next Article IV consultation with the People’s Republic of China will be held on the standard 12‑month cycle.
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China: Selected Economic Indicators |
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|
2018 |
2019 |
2020 |
2021 |
2022 |
2023 |
2024 |
2025 |
2026 |
2027 |
2028 |
|
|
Est. Projections |
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|
(Annual percentage change, unless otherwise indicated) |
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|
NATIONAL ACCOUNTS |
|||||||||||
|
Real GDP (base=2015) |
6.75 |
6.0 |
2.2 |
8.4 |
3.0 |
5.4 |
4.6 |
4.0 |
3.8 |
3.6 |
3.4 |
|
Total domestic demand |
7.42 |
5.3 |
1.7 |
6.8 |
2.7 |
6.2 |
5.2 |
4.1 |
3.9 |
3.7 |
3.5 |
|
Consumption |
7.91 |
6.3 |
-0.3 |
9.0 |
2.0 |
8.4 |
5.5 |
4.3 |
4.1 |
4.0 |
3.7 |
|
Fixed investment |
7.34 |
5.3 |
3.4 |
3.2 |
3.4 |
4.8 |
4.4 |
4.0 |
3.6 |
3.3 |
3.2 |
|
Net exports (contribution) |
-0.49 |
0.7 |
0.6 |
1.8 |
0.4 |
-0.5 |
-0.4 |
0.1 |
0.0 |
0.0 |
0.0 |
|
Total capital formation (percent of GDP) |
43.96 |
43.1 |
42.9 |
43.3 |
43.5 |
42.3 |
42.1 |
41.9 |
41.7 |
41.6 |
41.6 |
|
Gross national saving (percent of GDP) 1/ |
44.14 |
43.8 |
44.5 |
45.3 |
45.7 |
43.7 |
43.4 |
43.1 |
42.8 |
42.5 |
42.3 |
|
Output gap estimate |
-0.50 |
-1.0 |
-3.6 |
-1.5 |
-2.8 |
-1.4 |
-0.5 |
-0.2 |
-0.1 |
0.0 |
0.0 |
|
LABOR MARKET |
|||||||||||
|
Unemployment rate (year-end) 2/ |
4.90 |
5.2 |
5.2 |
5.1 |
5.5 |
5.2 |
… |
… |
… |
… |
… |
|
PRICES |
|||||||||||
|
Consumer prices (average) |
1.93 |
2.9 |
2.5 |
0.9 |
1.9 |
0.4 |
1.3 |
2.0 |
2.0 |
2.0 |
2.0 |
|
Consumer prices (end of period) |
1.78 |
4.5 |
0.2 |
1.4 |
1.8 |
0.1 |
1.8 |
2.0 |
2.0 |
2.0 |
2.0 |
|
GDP Deflator |
2.1 |
1.3 |
3.0 |
2.2 |
-1.1 |
1.5 |
1.8 |
1.9 |
2.0 |
2.0 |
|
|
FINANCIAL |
|||||||||||
|
7-day repo rate (percent) |
4.58 |
3.0 |
2.7 |
2.2 |
2.3 |
1.9 |
… |
… |
… |
… |
… |
|
10 year government bond rate (percent) |
4.62 |
3.7 |
3.2 |
3.0 |
3.1 |
2.8 |
... |
... |
... |
... |
... |
|
MACRO-FINANCIAL |
|||||||||||
|
Total social financing |
10.26 |
10.7 |
13.3 |
10.3 |
9.6 |
9.3 |
8.9 |
7.3 |
6.9 |
6.8 |
6.7 |
|
In percent of GDP |
247.92 |
254 |
278 |
274 |
286 |
300 |
307 |
312 |
315 |
319 |
322 |
|
Total nonfinancial sector debt 3/ |
10.79 |
10.8 |
13.2 |
10.4 |
9.8 |
9.4 |
9.2 |
7.5 |
7.1 |
7.0 |
6.8 |
|
In percent of GDP |
248.25 |
254 |
278 |
277 |
284 |
295 |
301 |
305 |
308 |
311 |
312 |
|
Domestic credit to the private sector |
8.62 |
8.7 |
10.8 |
8.4 |
8.3 |
7.7 |
7.8 |
5.5 |
5.1 |
5.1 |
5.1 |
|
In percent of GDP |
161.24 |
162 |
173 |
168 |
173 |
179 |
182 |
182 |
180 |
180 |
179 |
|
Household debt (percent of GDP) |
52.30 |
55.8 |
61.6 |
62.1 |
62.2 |
63.9 |
62.8 |
62.2 |
62.0 |
61.9 |
62.0 |
|
Non-financial corporate domestic debt (percent of GDP) |
108.94 |
106 |
112 |
106 |
111 |
115 |
119 |
119 |
118 |
118 |
117 |
|
GENERAL BUDGETARY GOVERNMENT (Percent of GDP) |
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|
Net lending/borrowing 4/ |
-4.28 |
-6.1 |
-9.7 |
-6.0 |
-7.5 |
-7.5 |
-7.4 |
-7.4 |
-7.6 |
-7.8 |
-8.0 |
|
Revenue |
28.99 |
28.1 |
25.7 |
26.6 |
25.9 |
26.5 |
26.7 |
26.8 |
27.0 |
27.2 |
27.3 |
|
Additional financing from land sales |
2.84 |
2.9 |
2.5 |
2.3 |
1.1 |
1.1 |
1.1 |
1.1 |
1.1 |
1.1 |
1.1 |
|
Expenditure |
33.28 |
34.2 |
35.4 |
32.7 |
33.4 |
34.0 |
34.1 |
34.2 |
34.6 |
34.9 |
35.3 |
|
Debt |
36.50 |
38.5 |
45.4 |
46.9 |
50.6 |
55.3 |
58.7 |
62.1 |
65.7 |
69.4 |
73.4 |
|
Structural balance |
-4.14 |
-5.8 |
-8.8 |
-5.7 |
-6.7 |
-7.1 |
-7.3 |
-7.3 |
-7.6 |
-7.8 |
-8.0 |
|
BALANCE OF PAYMENTS (Percent of GDP) |
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|
Current account balance |
0.17 |
0.7 |
1.7 |
2.0 |
2.2 |
1.5 |
1.3 |
1.2 |
1.0 |
0.9 |
0.8 |
|
Trade balance |
2.75 |
2.7 |
3.4 |
3.2 |
3.7 |
3.4 |
3.3 |
3.5 |
3.4 |
3.4 |
3.3 |
|
Services balance |
-2.11 |
-1.8 |
-1.0 |
-0.6 |
-0.5 |
-1.3 |
-1.4 |
-1.6 |
-1.6 |
-1.7 |
-1.8 |
|
Net international investment position |
15.23 |
16.0 |
15.4 |
12.3 |
14.2 |
15.6 |
16.0 |
16.2 |
16.3 |
16.3 |
16.2 |
|
Gross official reserves (billions of U.S. dollars) |
3167.99 |
3,223 |
3,357 |
3,427 |
3,307 |
3,299 |
3,450 |
3,572 |
3,642 |
3,714 |
3,787 |
|
MEMORANDUM ITEMS |
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|
Nominal GDP (billions of RMB) 5/ |
91577.43 |
99,071 |
102,563 |
114,528 |
120,502 |
125,544 |
133,244 |
141,013 |
149,076 |
157,533 |
166,113 |
|
Augmented debt (percent of GDP) 6/ |
80.85 |
86.3 |
98.8 |
100.8 |
107.7 |
116.2 |
122.0 |
127.5 |
132.8 |
137.7 |
142.6 |
|
Augmented net lending/borrowing (percent of GDP) 6/ |
-9.40 |
-12.5 |
-17.0 |
-12.1 |
-13.4 |
-13.6 |
-13.3 |
-13.0 |
-12.8 |
-12.6 |
-12.4 |
|
Change in Augmented Cyclically-Adjusted Primary Balance 7/ |
2.07 |
-3.1 |
-2.6 |
3.9 |
-0.8 |
-0.1 |
0.2 |
0.5 |
0.4 |
0.3 |
0.4 |
|
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/ Expenditure 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). 7/ In percent of potential GDP. |
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[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 5, 2024. 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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