February 5, 2024
BEIJING – Despite a moderate slowdown, China’s economy will still contribute more than a quarter of global economic growth this year and remain the largest contributor to worldwide growth, said a senior official at the International Monetary Fund.
The country’s real estate sector is undergoing a needed adjustment to address oversupply, which can ultimately help stabilize economic growth, with more supportive policy measures essential to facilitate this process, said Steven Barnett, senior resident representative of the IMF in China.
“China would still be the single-largest contributor to contribute over one-quarter of global growth this year,” Barnett said in an exclusive interview with China Daily, adding that the over-a-quarter contribution does not yet take into account positive spillover of China’s growth on other economies.
The 2023 China Article IV staff report, released on Friday, in which the IMF offers an annual in-depth review of the country’s economic status and policy actions, projects China’s real GDP growth will reach 4.6 percent in 2024, down from 5.2 percent recorded in 2023, as property sector woes continue to weigh on private demand and confidence.
Barnett said China’s property sector has been adjusting from oversupply to a more sustainable size, and the IMF estimates that an adjustment of about 30 to 60 percent is plausible given demographics, excess inventories and other factors.
The good news is that, he said, compared with 2019, both housing starts and housing sales have fallen by about 50 percent as of last year.
“These declines do indicate the process of reducing imbalances in supply and demand is very much underway,” Barnett said, though cautioning there remains a question of inventories to work through while market conditions vary in different cities.
“Once this adjustment is done, and once the housing sector is on a sounder footing, the whole economy — real estate is one-fifth of (total) value added — will be on a sounder footing.”
Acknowledging that policy efforts to minimize the cost of real estate adjustment are welcome, Barnett said more should be done, such as repairing the balance sheets of viable developers, accelerating the exit of nonviable developers, ensuring that pre-sold housing is finished and allowing greater housing price flexibility.
His remarks came as the Chinese economy is grappling with both a tumbling real estate sector and insufficient domestic demand, with the year-on-year growth in the consumer price index, a main gauge of inflation, staying negative for three consecutive months as of December.
Barnett said he does not see deflation in China. “We don’t see this decline in prices lasting.”
The Article IV staff report forecasts China’s CPI growth to normalize to 1.3 percent this year from 0.2 percent in 2023 as the output gap narrows.
China has ample scope in macroeconomic policies this year to cope with slack in the economy, Barnett said, as low inflation offers room for more monetary accommodation, especially interest rate cuts.
He said China should maintain a neutral fiscal policy, pivoting from off-budget investment spending toward on-budget support to households to maximize the policy effect.
In 2023, US’ nominal GDP growth outpaced China, sparking discussions of a widening US-China GDP gap.
Barnett said he does not take this as a sign that China is lagging behind the United States further when it comes to economic strength. “In terms of real growth, China grew last year at double the rate of the US economy.”
Real growth adjusts the nominal figure for inflation to reflect the actual increase in the volume of goods and services produced.
China has, however, seen a gradual economic slowdown since even before the pandemic, Barnett said, recommending reforms to give the market a more decisive role in the economy, ensuring a level playing field between all types of firms and improving the business environment.
He added that the IMF welcomes China’s continued and growing leadership in tackling global climate and debt issues.
“We’ve seen many low-income and vulnerable countries experiencing debt distress. China today is a major creditor country, so we really welcome and appreciate China’s leadership and participation in these debt restructuring efforts.”