IMF Urges China to Shift Focus to Domestic Growth, Address Property Sector Woes

IMF on China: Observing that China has benefited from a particular set of policies over the last decades for its export-oriented growth, IMF Managing Director Kristalina Georgieva has said that the time has come for Beijing to look at domestic sources for growth, opening up more opportunities for the market. China's economy grew at 5.3 per cent in the first quarter, making a stronger-than-expected start to the year even as the downturn of its property market continued while the domestic demand remained subdued.

The GDP grew 5.3 per cent year on year to 29.63 trillion yuan (about USD 4.17 trillion) in the first three months of 2024, data from the National Bureau of Statistics showed on Tuesday.

"China is the fork in the road. Why? Because China has to define growth strategies for the future. China has the benefit of a particular set of policies over the last decades, export-oriented growth, but the time has come to look at domestic sources for growth, opening up more opportunities for the market to lift these prospects,” Georgieva said.

The IMF sees three important opportunities for China, she said.

China's Growth

Number one, to shift the economy more towards domestic consumption. It is actually in line with what China is aspiring to, the dual circulation economy. It would take giving consumers more confidence and offering them more services, and more things to buy.

“We know that the healthcare services in China can expand quite significantly. We know that getting the social safety nets to work more effectively would give people an opportunity to save a bit less, to spend a bit more,” she said.

“Secondly, we see the reforms in China that have served the country well continuing to be needed, reforms of state-owned enterprises opening up for a more competitive environment. In the years ahead, that can help China grow more,” Georgieva said. Last but not least, there are some problems right now, and how they are solved will have implications for China’s growth, she observed.

“The most obvious example is the property sector. People in China rely on their homeownership as a way of saving. When prices there—as savings go down, when prices of real estate go down, that affects consumer confidence. So clearing up the problems in the sector more resolutely would certainly help China,” she said.

“We see China making some important decisions around greening their growth pattern. Again, the more China does for lifting up domestic consumption, the better,” the IMF Managing Director said.

At a separate news conference, Krishna Srinivasan, Director of IMF Asia and Pacific Department, told reporters that on the macroeconomic aspects, China's economy is experiencing weak domestic demand.

This emanates from two factors: the continued weakness in the real estate sector and the legacies of the pandemic. So in that context, the IMF has advocated for two things.

One is policies that would help address the problem in the property sector and other than that, trying to boost consumption demand by improving social safety nets in the case of China and again, improving the pension system in a fiscally prudent way and investing in people, education, and health. “So that's as far as once on the domestic demand side if you pursue these policies, you will see domestic demand rising and deflation risks coming down,” he said.

China provides wide-ranging support to priority sectors. This includes preferential access to credit research funds and incentives for certain firms, particularly in the areas of strategic manufacturing and science and technology.