In response to China’s rising exports and heavy investment in new factories, the International Monetary Fund on Wednesday significantly increased the rate at which it expects China’s economy to grow this year and next.
The IMF now estimates that China will grow by 5 percent this year and by 4.5 percent in 2025. That’s 0.4 percentage points more for each year compared to the fund’s forecasts just six weeks ago.
China’s gross domestic production rose 5.2 percent last year as the economy recovered after nearly three years of strict pandemic policies that included numerous municipal lockdowns and mandatory quarantines. Many economists, including at the IMF, had expected growth to stall this year due to a sharp decline in China’s real estate market and a slowdown in domestic spending.
But while property prices continued to fall and retail sales grew slowly, China’s economy instead grew strongly in the first three months of this year, growing at an annual rate of around 6.6 percent thanks to booming exports and strong factory investment.
The Chinese government is taking steps to address the real estate crash, but faces enormous challenges. Years of overbuilding have resulted in four million new but unsold apartments being created and, according to a conservative estimate, even 10 million apartments were sold but construction was not yet completed.
Many owners of empty apartments are now faced with years of high mortgage payments, but have little chance of the apartments increasing significantly in value.
A plan unveiled this month for local governments to buy large numbers of vacant apartments and convert them into affordable housing was met with skepticism by many analysts.
Beyond housing, China has made very large investments this year in its factories, which already dominate global markets for goods ranging from furniture to electric vehicles to solar panels.
Janet L. Yellen, the United States Treasury Secretary, has sharply criticized China in recent months for its industrial strategy. She warned against allowing China to sharply increase its exports to offset its economic problems at home. It has begun rallying international support for tariffs or other restrictions on low-cost Chinese exports that could threaten industries and jobs in the West. President Biden this month announced sharp increases in tariffs on a range of Chinese imports, including electric vehicles and solar panels.
Xi Jinping, China’s supreme leader, said China’s policies help the world by increasing global goods supply and easing international inflationary pressures.
Ms. Yellen criticized the IMF last month for failing to challenge China’s manufacturing push, which she said creates unnecessary excess capacity that encourages Chinese companies to ship their products abroad at very low prices.
Chinese officials reject the term “excess capacity” as an unfair characterization of their economy, and Wednesday’s IMF statement avoided the term. The fund also avoided any mention of China’s trade surplus, which now accounts for a tenth of total economic output in manufactured goods.
However, the statement called for China to begin rolling back policies that help its manufacturers.
“China’s use of industrial policies to support priority sectors may lead to misallocation of domestic resources and potentially affect trading partners,” the IMF said.
The fund also said China should take comprehensive measures to address problems in the real estate market and curb weakness in domestic spending. The IMF recommended a longer-term effort to strengthen the social safety net and the service sector.
Mr. Xi was concerned about increases in social spending. “We must not aim too high or overdo social security and stay away from the idleness trap of well-being,” he said in a speech three years ago.
As China’s labor force gradually shrinks due to the decades-long “one-child” policy and productivity gains slow as China catches up or overtakes the West in many technologies, the economy is expected to continue to grow more slowly in the coming years. IMF staff forecast in Wednesday’s statement that growth would slow to 3.3 percent by 2029.
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2024-05-29 02:13:46
www.nytimes.com
