中文
By Sonali Jain-Chandra and Steven Barnett
Editor's note: Decision Makers is a global platform for decision makers to share their insights on events shaping today's world. Sonali Jain-Chandra is the Chief of the International Monetary Fund China Division and Steven Barnett is the Senior Resident Representative in China of the International Monetary Fund. The article reflects the authors' opinions and not necessarily the views of CGTN.
China's economic development has been remarkable. Over the past 25 years, real GDP increased more than 8 percent a year on average, living standards rose dramatically, and extreme poverty was eradicated. China grew to become the world's second-largest economy – and the largest in purchasing power parity terms. Developments in China, thus, have a big impact on the world. In 2023, for example, China accounted for about one third of world growth.
Strong and sustainable growth in China is thus good for China and good for the global economy. This is especially true now, with the global economy having large scars from the pandemic. Thus, the focus of the International Monetary Fund's (IMF) 2023 annual report on China was on securing strong and sustainable growth.
In the near-term, the main challenge is to secure the recovery. China, like the rest of the world, saw large output losses during the pandemic. After growing 3.0 percent in 2022, China's GDP growth rebounded to 5.2 percent in 2023 – in line with the government's target.
Unlike the rest of the world, however, China also underwent a huge adjustment in the property sector. A critical short-term challenge is to minimize the costs of this large, necessary and welcome adjustment in real estate. Coming into the pandemic, the real estate sector was large, about a fifth of total value added if related industries are included, which was a big source of local government revenue, and prices were unaffordable. IMF staff estimate that underlying demand is likely to fall over the next decade by about 35-55 percent compared to the last decade. Starts and sales have already adjusted by about this much, but it will still take time to work through existing inventories and finish the adjustment.
More policy actions would accelerate the recovery in real estate. The authorities have taken welcome measures. These include unveiling measures to boost lending to complete unfinished housing, expanding eligibility for first-time homebuyer benefits, lowering down payments, and allowing refinancing of existing mortgages.
More can be done, however, to speed the adjustment. First, address stressed property developers by helping viable developers repair their balance sheets and accelerating the exit of unviable developers. Second, solve the presale problem by reforming the model and providing more central government financing for housing completions. Third, ensure that prices can move enough to clear the market. Fourth, expand access to housing, including through support for public and rental housing. Success in these areas would speed and smooth the adjustment to a new equilibrium in real estate.
Macroeconomic policies can play a supportive role, including offsetting the drag from real estate. Fiscal policy can lift demand by rotating away from off-budget investment toward support to households. Based on the IMF augmented deficit measure, which includes off-budget activity by Local Government Financing Vehicles, this would be consistent with a neutral fiscal stance – with cuts in off-budget investment offset by increases in on-budget household support.
Meanwhile, monetary policy could also be more supportive. With inflation low and output below potential, more easing is warranted, preferably through further cuts in policy interest rates.
The above referred to the near-term; but just as important are the policies to achieve strong and sustained growth over the medium-term. The headwinds are considerable. Demographics will weigh on the economy. The working age population will continue decline – fewer workers imply less output – and the age-dependency ratio will rise sharply. This will put further strain on the budget and social security system. Further strain, because a sizeable fiscal consolidation – 0.7 percent of GDP a year for 2025-35 – is already needed to stabilize augmented government debt to GDP ratio.
In addition, China experienced a significant drop in total factor productivity since the global financial crisis. While this is also true globally, China's decline was sharper. In light of the above, our medium-term forecast is for China's growth likely to continue to slow.
With comprehensive policy reforms, China could grow considerably faster over the medium term. Our analysis shows that growth could be around 1 percentage point higher per year with accelerated reforms to enhance the role of markets and boost total factor productivity. Priorities include pro-market reforms to give the market a more decisive role in the economy. This includes allowing greater firm entry and exit, which would improve business dynamism and foster innovation; and reducing local protectionism, which would enhance competitiveness.
State-owned enterprise (SOE) reform is another priority. Ensuring competitive neutrality would help close the productivity gap between state- and private-owned firms as would fostering the orderly exit of unprofitable SOEs. Finally, monetary and financial sector policies could support a more efficient allocation of resources, including by strengthening the insolvency and restructuring frameworks.
Lastly, and critically, is to secure growth that is environmentally sustainable. China has made welcome progress towards meeting its climate goals and is on track for carbon emissions to peak before 2030. It has the world's largest installed capacity of renewable energy and is set to overachieve its Nationally Determined Contribution target of raising the non-fossil share in energy consumption to around 25 percent by 2030.
At the same time, China is still the single largest emitter of carbon dioxide and thus the speed of its de-carbonization is crucial in addressing the global climate crisis. China's continued and growing leadership to address the global climate crisis is thus both welcome and vital. As with growth, China's success in greening the economy will be a win for China and a win for the world.
