The International Monetary Fund welcomes China's "resilient economic growth and the post-pandemic recovery in private consumption", according to a new report.
Each year, an IMF team visits China and other countries to collect economic and financial data and discuss with officials of each country their economic developments and policies. On Friday, the IMF released the final report for China's 2024 Article IV Consultation.
China's economy has remained resilient, even though the property sector is experiencing ongoing difficulties, the report said. It noted that the nation's GDP grew 5.2 percent in 2023 and, during the first half of 2024, grew 5 percent year-on-year.
Driven by China's strong economic data from the first quarter, the IMF increased its forecast for the nation's annual economic growth to 5 percent this year, an upward revision of 0.4 percentage points compared with the projections released in the IMF's "World Economic Outlook" report in April.
This expectation aligns with China's goal, announced earlier this year, of reaching around 5 percent economic growth in 2024.
The IMF said that such growth has been "primarily driven by strong public investment and the post-COVID recovery in private consumption, with net exports also providing a boost more recently".
However, it said inflation has been low in recent quarters amid continued economic slack.
"Looking ahead, growth is projected to be broadly in line with the government's target in 2024, and inflation is expected to pick up gradually as the output gap closes and the impact of lower commodity prices wanes," the report said.
While there is uncertainty in China's economic outlook, "decisive policy action to facilitate adjustment in the property sector or market-oriented structural reforms could boost confidence and lead to better-than-expected economic outcomes", it said.
The IMF's directors emphasized downside risks from the ongoing adjustment in the property market and the drag from local government debt.
In that context, they concurred that macroeconomic policies should support domestic demand in the short term, according to the report.
Directors also highlighted that a balanced policy approach and pro-market structural reforms "would be necessary to foster high-quality, green growth in the medium term", it said.
The recently concluded third plenary session of the 20th Central Committee of the Communist Party of China outlined a vision to establish "a high-standard socialist market economy" by 2035, according to the communique issued after the meeting.
This vision focuses on enhancing the role of market mechanisms to create "a fairer and more dynamic market environment".
As part of the reform priorities set during the third plenum of the 20th CPC Central Committee, the plan includes lifting market restrictions while ensuring effective regulation to maintain market order and address market failures. These efforts aim to balance market freedom with necessary oversight to promote economic growth and stability.
"We will implement various measures for preventing and defusing risks in real estate, local government debt, small and medium-sized financial institutions, and other key areas," the communique said.
The IMF also said it welcomed China's ongoing efforts to facilitate the property sector adjustment and boost homebuyers' confidence, emphasizing the need for a comprehensive policy package for an efficient and cost-effective transition, according to the report.
Furthermore, the organization recommended that China adopt a neutral fiscal stance in 2024 to boost consumer confidence and domestic demand, with a shift toward household support and a more progressive tax regime. They suggested reducing the fiscal deficit starting in 2025 and emphasized the need for fiscal consolidation and reforms to stabilize public debt.
The IMF also noted China's "constructive role" in addressing global challenges, such as supporting debt restructuring in low-income countries and tackling climate change.
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