China’s economy is recovering, but Beijing needs to resist the urge to be overly “hands-on” and allow both public and private firms to advance, according to the International Monetary Fund (IMF).
Despite recovering from COVID-19, the world’s No. 2 economy is still not operating at its full potential, IMF officials said on Friday.
IMF commends China for its initial response to the epidemic but emphasizes that the same causes that caused economic growth to considerably slow down in 2022 could have a negative impact on economic performance this year if they are not effectively addressed. Concerns raised in the paper include China’s struggling real estate market, dwindling population, sluggish productivity development, and the unknown existence of potential new COVID versions.
Fund’s most recent forecasts, which were released on January 31, the second-largest economy in the world will grow by 5.2% this year as opposed to 3% in 2022. With the exception of the 2.2% expansion that occurred when Covid launched in 2020, such performance was the poorest in over 50 years.
Thomas Helbling, the IMF’s deputy director for Asia and the Pacific, stated that China’s economy is “still operating below potential” and that “the support provided in 2022 will expire.” The IMF advises China to take a “neutral fiscal stance with the composition of spending shifting towards households.” We currently estimate growth to fall below 4% over the next five years without reforms, according to IMF officials who participated in the call. They urged Chinese policymakers to implement extensive structural changes to the economy, such as ensuring a level playing field between private businesses and state-owned enterprises.
Chinese domestic consumption, notably in the hospitality and other contact-intensive industries that “are still working well below capacity,” is expected to rise significantly in 2023.
