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| Information photo: Posters encouraging the elderly to get vaccinated are posted on the streets of Beijing. (30 March 2022) |
The International Monetary Fund (IMF) on Wednesday (November 23) called on Chinese authorities to boost coronavirus vaccination rates and provide stronger support to the struggling real estate sector to restore public confidence while reducing risks from a slowing global economy and high energy prices.
Sonali Jain-Chandra, head of the IMF‘s delegation to China, led an annual Article IV consultation with China via video link from November 2 to 16 to discuss and review China’s economic development issues and prospects.
“The delegation had constructive discussions with high-level officials of the Chinese government and People’s Bank of China, representatives of the private sector, and academics, and exchanged views on the economic outlook, reform progress, challenges, and policy responses,” the IMF said in a statement issued Wednesday after the consultations.
In its statement, the IMF reiterated its October forecast for China’s GDP growth, which is 3.2% this year and is expected to grow by 4.4% in 2023, assuming that draconian anti-epidemic measures gradually ease in the second half of next year.
The Chinese government set itself a growth target of 5.5 percent at the beginning of this year, but it is no longer possible.
“Under the zero-zero policy, China has weathered the initial impact of the pandemic, achieved a rapid economic recovery from the lockdown in early 2020, and significantly increased the global supply of medical supplies and durable goods at a critical time for the global economy. But since then, China’s economic growth has slowed, and the resurgence of the pandemic, tough challenges in the real estate sector and slowing global demand have kept it under pressure,” said Gita Gopinath, First Managing Director of the International Monetary Fund.
Gopinath also met with several senior Chinese policy officials during the video consultation.
“Although the flexibility of the zero-zero policy has gradually increased, the emergence of more contagious variants and persistent gaps in vaccination has led to the need for China to implement lockdowns more frequently. This puts pressure on consumption and private investment, including in the housing sector,” Gopinath’s statement said.
“The intention of tightening regulation of the real estate sector to control leverage is good, but developers are facing more severe financial pressures, housing sales and investment have slowed rapidly, and land sale revenues from local governments have fallen sharply. The
IMF‘s meeting with Chinese officials comes as the Chinese government tries to reduce the impact on people’s livelihoods and the economy by implementing “optimized” and “precise” reforms on epidemic prevention measures and relaxing some controls. However, after the release of the “20 new epidemic prevention regulations”, the epidemic situation in many parts of China has soared, and many cities, including the capital Beijing, have had to re-implement strict lockdown measures. This has further heightened concerns about China’s economic development and shattered people’s dreams of a swift lifting of the lockdown.
The IMF believes that China’s economy remains under downward pressure due to factors such as the global economic slowdown, high energy prices, and further tightening of global financial conditions. Within China, repeated coronavirus outbreaks and lockdowns, coupled with ongoing challenges in the real estate sector, continue to pose major risks.
“Over the longer term, rising geopolitical tensions have put pressure on financial decoupling and constrained trade, foreign direct investment, and technology exchanges, raising the risk of global fragmentation,” the statement said.
The IMF recommends that China’s fiscal policy should safeguard economic recovery and rebalance the economy in 2023 while maintaining a neutral fiscal policy stance designed to support households to help drive the transition to consumption-led growth and boost growth more effectively. The IMF also called on Beijing to maintain a moderately supportive monetary policy and rely more on price-based instruments.
The IMF applauded Beijing’s recent efforts to step up its response to the real estate crisis, including designating a loan program to guarantee the delivery of unfinished housing and allowing the forbearance of loans to troubled developers.
“Building on these efforts, the authorities also need to introduce robust and well-funded mechanisms to complete troubled unfinished projects, protect new pre-sale buyers from the risk of unfinished homes, and phase out grace measures,” Gopinath said in a statement.
“These measures will help restore homebuyer confidence and facilitate market-based restructuring,” she said. She also noted that in the medium term, structural reforms (including refining pre-sale models, rebalancing the economy, and increasing available savings options) should help drive a gradual transformation of the housing market to a more sustainable size.
The IMF also called on Beijing to renew its efforts to accelerate market-oriented structural reforms, such as ensuring competitive neutrality between private and state-owned enterprises.
China’s central bank and the China Banking and Insurance Regulatory Commission jointly issued a document on Wednesday calling for the current financial support for the stable monitoring and development of the real estate market.
The circular jointly issued by the People’s Bank of China and the China Banking and Insurance Regulatory Commission calls for maintaining stable and orderly real estate financing, actively doing a good job in “guaranteeing the delivery of buildings” financial services, actively cooperating with the risk disposal of distressed real estate enterprises, and protecting the legitimate rights and interests of housing finance consumers in accordance with the law.
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