China is seeing a strong recovery from the Covid-19 crisis but now should use its financial heft and shift its focus to boosting its own consumers, a top IMF official said yesterday.
That comment renews the International Monetary Fund’s longstanding pre-pandemic message to Beijing to change its model away from one dominated by exports and massive government projects.
Before Covid-19 shutdowns upended international commerce and threw the world into the worst peacetime crisis in a century, the Washington-based lender had long warned that China’s massive export program and huge trade surpluses were causing imbalances in the global economy.
“Importantly, going forward, China can use fiscal policy, to facilitate the transformation to a new growth model...that relies less on investment in public infrastructure, relies more on private consumption,” said Vitor Gaspar, director of the IMF Fiscal Affairs Department.
In addition, he told reporters that “strengthening social safety nets in China and reforming the tax system are important opportunities for progress.”
Beijing has provided strong government support throughout the pandemic and is on track “in 2021 to be one of the fastest growing economies in the world” with the IMF forecasting growth of 8.4% this year.
“Clearly China has fiscal space (and) should maintain flexibility in fiscal policy and avoid withdrawing fiscal support prematurely,” Gaspar said at a briefing on the fund’s Fiscal Monitor report.
IMF chief Kristalina Georgieva last week issued the same message to the world’s second largest economy, calling its strong growth “somewhat unbalanced.”
China’s economy already recovered the ground lost during the pandemic, but she said it has been “very heavily reliant on public support – public investment – and private consumption has not recovered as fast as we would have hoped.”
In order to achieve “a durable recovery,” she said China should “work in the direction of supporting the recovery coming from the private sector, as opposed to the public sector.”
The IMF raised its 2021 growth forecast for China to 8.4% on Tuesday, as it projected a stronger global rebound from the pandemic but warned of “divergences in the speed of recovery”. The figure was 0.3 percentage points above the IMF’s January prediction and would mark the country’s strongest growth rate since 2011, after the world’s second largest economy became the only major one to expand last year.
China has enjoyed a strong rebound since strict lockdowns across the country brought activity to a near-halt in 2020 after Covid-19 first surfaced in the central city of Wuhan.
The IMF said “effective containment measures, a forceful public investment response, and central bank liquidity support have facilitated a strong recovery”.
China’s GDP grew 2.3% in 2020 – the slowest pace in more than four decades – and although leaders set a modest target of more than 6% this year, analysts widely expect a much higher number.
“China had already returned to pre-Covid GDP in 2020, whereas many others are not expected to do so until well into 2023,” said the IMF.
Its forecast for China is much higher than other major economies including the US, Germany and France, although behind India.
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