China moves to growth on its own – Economics – Kommersant

China’s economy is recovering from the end of the coronavirus “zero tolerance” policy introduced during the pandemic, but needs structural reforms, IMF analysts say in their annual country monitoring. The fund’s mission report outlines new and confirms previously recorded trends in the development of China’s post-pandemic economy: the country is completing the transition from extensive growth to a model focused on consumer demand, and is switching to moving “in depth” to structural changes in the development model. Due to the fact that these changes will cost China quite expensive, the IMF does not expect serious economic breakthroughs on the horizon of the next ten years from the country.

The impressive pace of China’s economic recovery in 2021 after the lifting of the first coronavirus restrictions in 2022 slowed down, according to the annual report on China as an IMF member state, which representatives of the fund are preparing after an official visit to the country as part of consultations on Article IV of the agreement on the fund. Due to the ongoing outbreaks of COVID-19, the issue of reducing global demand for products manufactured in the country remains unresolved – the situation is complicated by the fragmentation of the global economy, which was discussed in detail at the World Economic Forum in Davos (see Kommersant on January 18). The current account surplus is expected to shrink from 2.1% of China’s GDP in 2022 to 1.3% in 2023 due to reduced spending on durable goods in advanced economies and the resumption of overseas travel by Chinese citizens.

Among the problems that the IMF expects from China is weak productivity growth (which analysts directly attribute to the dominance of inefficient state-owned enterprises in important sectors of the economy, which seriously affects the country’s development potential in the medium term). The document lists systemic recommendations to help China achieve sustainable growth: safely easing remaining coronavirus restrictions, ending the housing crisis (protecting homebuyers and market restructuring), reviewing macroeconomic policies (balanced recovery through loose fiscal and monetary policy and moving towards more support for households), as well as structural reforms (including to launch competition between public and private companies).

The decline in foreign investment due to the COVID-19 pandemic, combined with demographic changes, has pushed the country to complete faster and more abruptly than expected the transition from an extensive development model, which was largely provided by cheap domestic labor and an influx of foreign capital investment, to a focus on consumer demand. Now, in most of the positive scenarios for the development of China, which are offered by the IMF, the emphasis is on the social security of households. In particular, we are talking about strengthening the social security system, which should stimulate the reduction of excessively high savings rates and the reorientation of the funds available to citizens for the purchase of goods and services, as well as investments not related to real estate. Other structural changes in such scenarios include expanding health insurance programs, increasing unemployment benefits, and reforming the education system, which should improve the situation with its accessibility and quality and, as a result, lead to a more active development of human capital.

Given the change in the economic model and the amount of funds that will be needed to complete the transition period, even with a well-formed set of economic and political measures in the next ten years, the IMF expects China’s GDP to grow by about 18% (for comparison: from 2013 to 2021, the country’s GDP every year increased by an average of 6.6%. Fund analysts emphasize the importance of economic restructuring and internal reforms in the PRC and for other countries, recalling that the growth of the Chinese economy by 1 percentage point causes growth in other countries by about 0.3 percentage points.

Christina Borovikova