Press Release No. 24/184

IMF Staff Completes 2024 Article IV Mission to the People’s Republic of China

May 28, 2024

• China’s economy is projected to grow by 5 percent in 2024 and 4.5 percent in 2025. These reflect upward revisions of 0.4 percentage points for both years compared to the April WEO projections, driven by strong Q1 GDP data and recent policy measures. Core inflation is expected to rise but stay low as output remaining below potential.
• Risks are tilted to the downside, including from greater- or longer-than-expected property sector adjustment and increasing fragmentation pressures.
• The immediate priorities are to adopt a comprehensive policy package to facilitate the property sector adjustment and provide adequate macroeconomic support to boost domestic demand and mitigate downside risks.
• Achieving high-quality growth will require wide ranging structural reforms. Key priorities include rebalancing the economy towards consumption by strengthening the social safety net, liberalizing the services sector, and scaling back distortive supply side policies that support the manufacturing sectors.

Beijing, China: An International Monetary Fund (IMF) team, led by Ms. Sonali Jain-Chandra, Mission Chief for China, visited China from May 16 to 28 for the 2024 Article IV Consultation. The 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, risks, reform progress, 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 (PBoC) Governor PAN Gongsheng, Ministry of Finance (MOF) Vice Minister LIAO Min, Ministry of Commerce (MOFCOM) Vice Minister WANG Shouwen, PBoC Deputy Governor XUAN Changneng, National Financial Regulatory Administration (NFRA) Vice Chairman XIAO Yuanqi, and EXIM President REN Shengjun, among other senior officials.

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

“China’s economic development over the past few decades has been remarkable,driven by market-oriented reforms, trade liberalization and integration into global supply chains. However, these achievements have been accompanied by imbalances and rising vulnerabilities, and headwinds to growth have emerged.

“Recognizing these challenges, the authorities have focused on achieving high-quality growthby supporting innovation, especially in green and high-tech sectors, upgrading financial sector regulations, and introducing some policies to mitigate property and local government risks. However, a more comprehensive and balanced policy approach would help China navigate the headwinds facing the economy.

“China's economic growth is projected to remain resilient at 5 percent in 2024 and slow to 4.5 percent in 2025. Thesereflect upward revisions of 0.4 percentage points for both years compared to the April WEO projections, driven by strong Q1 GDP data and recent policy measures. Inflation is expected to rise but remain low as output remains below potential , with core inflation increase only gradually to average 1 percent in 2024. Over the medium term, growth is expected to decelerate to 3.3 percent by 2029 due to aging and slower productivity growth. Furthermore, risks are tilted to the downside, including a greater- or longer-than-expectedproperty sector adjustment and increasing fragmentation pressures.

“The ongoing housing market correction, which is necessary for steering the sector towards a more sustainable path, should continue.The authorities have implemented various welcome measures to guide the property market transition, including recent policy announcements regarding lending support for affordable housing. A more comprehensive policy package would facilitate an efficient and less costly transition while safeguarding against downside risks. The priority should be to mobilize central government resources to protect buyers of pre-sold unfinished homes and accelerate the completion of unfinished presold housing, paving the way for resolving insolvent developers. Allowing for greater price flexibility, while monitoring and mitigating potential macro-financial spillovers, can further stimulate housing demand and help restore equilibrium.

“ Near-term macroeconomic policies should be geared to support domestic demand and mitigate downside risks. Fiscal policy should prioritize providing one-off central government financial support for the real estate sector. Excluding the one-time property sector package , a neutral fiscal stance in 2024 would balance the trade-offs between supporting domestic demand, mitigating deflation risks, and managing unfavorable debt dynamics. The monetary policy easing implemented so far in 2024 is welcome, but given subdued inflation and output below potential,there is scope for further easing.Greater exchange rate flexibility would reduce deflation risks and help absorb external shocks.

"China faces significant fiscal challenges, especially for local governments.Sustained fiscal consolidation over the medium term is needed to stabilize debt, while restructuring the unsustainable debt of local government financing vehicles can help reduce fiscal strains.

“To tackle elevated financial stability risks,the authorities have appropriately focused on addressing vulnerabilities in the property sector, local government debt, and smaller financial institutions. Strengthening the bank resolution framework and strictly applying prudential standards will help enhance financial stability and mitigate risks.

“ Achieving high-quality growth will require structural reforms to counter headwinds and address underlying imbalances. Key priorities include rebalancing the economy towards consumption by strengthening the social safety net and liberalizing the services sector to enable it to boost growth potential and create jobs.

“China's use of industrial policies to support priority sectors can lead to a misallocation of domestic resources and potentially affect trading partners. Scaling back such policies and removing trade and investment restrictions would raise domestic productivity and ease fragmentation pressures. In this context, China should continue its efforts to strengthen the multilateral trading system,particularly the WTO.

“China plays an important and constructive role in supporting debt restructuring in low-income and vulnerable countries and promoting the green transition. The Fund looks forward to continued cooperation with the authorities in this regard.”

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