China Criticizes IMF’s Growth Outlook, Calls To Boost Confidence

(Bloomberg) -- China clashed with the International Monetary Fund over its forecast for decelerating growth in the Asian giant, underscoring Beijing’s sensitivity to unflattering assessments of its economy.

Uncertainty surrounding China’s outlook this year is “high,” the IMF said in its annual review of the world’s second-largest economy, referencing a deep property slump and weak external demand. The country’s economic expansion will cool in 2024 and continue to ease in the coming years, according to the report.

“Our authorities’ assessment of the recent Chinese economic developments is more positive” than the statement’s claim China had experienced a “subdued recovery,” Zhang Zhengxin, the IMF’s executive director for China, said in the report. 

IMF staff should “study carefully” the nation’s growth trend, Zhang added, urging the organization to carry out a more appropriate assessment of the nation’s prospects to help “stabilize” confidence. 

Beijing is trying hard to boost sentiment as its economy is besieged by a property crisis, falling prices and geopolitical tensions with the West. Authorities have broadened developer access to loans and stepped up efforts to arrest a massive stock rout, including by revealing early a decision to cut the amount of cash banks must keep in reserve to encourage lending.

“Much of the consultation was focused on the property sector and the local government debt issues,” Sonali Jain-Chandra the IMF’s mission chief for China, said at a press briefing Friday, referring to discussions held with Chinese officials ahead of releasing the report. “We recommend continued monetary policy accommodation” and a fiscal policy that would shift spending toward households, she added.

The IMF predicts China’s GDP will grow 4.6% this year and sees that number declining to about 3.5% in 2028, as the nation’s population ages and productivity declines. Policymakers will unveil the official goal for 2024 at the annual meetings of the national legislature in March, and are expected to target an ambitious number.

Even maintaining 2023’s expansion rate of 5.2% would be challenging given the higher comparison base, a waning of the pent-up demand unleashed after last year’s reopening from Covid controls and continued plunges in the housing market.

Read More: China Brings Back Youth Jobless Rate, With Rosier Number 

The IMF also called on Beijing to publish more data on its economy, saying “significant” omissions remained. The report cited the gap between China’s trade surplus as measured in customs data and balance of payments statistics.

China responded that it was making “continued progress with data provision” and said the widening gap between the two statistics was explained by different data collection methodologies.

Real estate investment in the country will likely contract further this year amid lingering financial stress among developers, slowing home demand and an inventory overhang, according to the IMF. New home sales were down 48% in January from the previous month, a record low in recent years. 

“We think more needs to be done to put the housing market on a path towards a smoother transition to a smaller size,” said Jain-Chandra. 

Authorities should accelerate the exit of non-viable developers, increase financing to complete pre-sold but unfinished housing projects and allow greater correction in prices, she added.

Fundamental demand for new housing in the country is seen falling by almost 50% over the next decade, according to the IMF, a view that Zhang blasted as overly pessimistic.

The IMF also recommended a “triage” of companies that borrow on behalf of provinces and cities to finance mainly infrastructure projects, so unsustainable players can go bad via a corporate insolvency regime. The cost of those failures should be shared between the central government, local authorities and investors, it said.

The stock of local government financing vehicles’ debt will be 65.9 trillion yuan ($9.2 trillion) this year, the IMF estimates in the report. That’s down from a projection of 74.4 trillion yuan in a similar report it released a year ago. The organization’s staff were not able to provide an immediate explanation on the difference of the numbers when approached by Bloomberg.   

Chinese authorities “saw scope to reduce infrastructure investment by LGFVs going forward,” according to the report.

--With assistance from Tom Hancock.

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