IMF Urges China to Tackle Rising Economic Risks

China must be clear and coordinated in addressing the country’s “accumulating risks”, the International Monetary Fund said in a statement released on Friday.

The fund urged Beijing to adjust its fiscal policy to “neutral” from “contractionary”, saying the post-pandemic recovery of the world’s second-largest economy is “well advanced, but is unbalanced and momentum is slowing”.

The IMF attributed the slowdown to the rapid withdrawal of policy support and the lagging recovery of consumption amid recurrent Covid-19 outbreaks and lockdown measures.

Recent power outages and a slowdown in real estate investment are also weighing on growth.

Regulatory tightening targeting technology sectors, while aimed at strengthening competition and data governance, has increased policy uncertainty, the fund said.

Climate Strategy Taking Shape

The IMF staff urged China to secure growth that is “balanced, inclusive and green”, adding that China’s climate strategy is taking shape with the release of detailed action plans, engaging all levels of government.

The most recent IMF forecast expects gross domestic product growth of 8% this year and 5.6% in 2022. But short-term risks include continued pandemic uncertainty, consumption weakness, and elevated financial vulnerabilities, the IMF staff warned.

“Declining productivity growth, increased decoupling pressures, and a shrinking workforce pose longer-term headwinds to growth,” they said in their report on their Article IV consultation.

Under Article IV missions, an IMF team of economists visits a country to assess economic and financial developments and discuss the country’s economic and financial policies with government and central bank officials.

The team expected core inflation to remain subdued and consumer price index inflation to remain below the pre-crisis target of about 3% despite currently high PPI inflation. The IMF staff will update their forecast for China in January.

• George Russell