China's economy, a global powerhouse, is on course to expand by 5.4% this year, marking a vigorous post-pandemic recovery. This figure surpasses previous expectations, as noted by the International Monetary Fund (IMF) on Tuesday.
The IMF's revision up from a 5% growth forecast signals confidence in China's economic resilience. The IMF's optimistic stance comes after a strategic economic boost by China's government, which approved a substantial 1 trillion yuan ($137 billion) sovereign bond issuance.
This move, coupled with permission for local governments to advance a portion of their 2024 bond quotas, is aimed squarely at supporting the nation's economy. Gita Gopinath, the IMF's First Deputy Managing Director, praised the Chinese economy's performance, especially its stronger-than-anticipated growth in the third quarter.
During a press event in Beijing, she highlighted the recent policy support that informed the IMF's revised forecast.
Navigating Future Challenges
However, the future is not without its challenges. The IMF anticipates a slight deceleration in growth to 4.6% in 2024, tempered by a persistently weak property sector and diminishing external demand.
Yet, even this forecast remains a notch above the 4.2% growth rate posited in the IMF's World Economic Outlook published last October. In a long-term perspective, China's growth is expected to moderate to about 3.5% by 2028.
This slowdown is attributed to factors such as diminishing productivity and the impacts of an aging population. Addressing these concerns, Gopinath underscored the necessity of a policy package for the real estate sector. This would involve hastening the withdrawal of insolvent property developers and easing the constraints on housing price adjustments.
The specter of local debt also looms large, with current figures reaching an alarming 92 trillion yuan ($12.6 trillion), representing 76% of China's GDP in 2022—a significant rise from 62.2% in 2019. The IMF advises a series of reforms to mitigate these risks, including the implementation of a coordinated fiscal framework and balance-sheet restructuring to alleviate local government debt burdens.
These recommendations extend to improving fiscal transparency and risk monitoring at the local level to forestall the emergence of new financial vulnerabilities.
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