China’s GDP growth could reach 5.4%

The International Monetary Fund (IMF) has raised its estimates for Chinese economic growth this year and next, a revision that follows stronger third-quarter data and announced stimulus measures. China’s October trade data, however, continues to point to weak external demand, with overseas shipments continuing to decline across nearly all destinations excluding Russia and Africa. At the same time, China’s imports showed growth in October, including due to an increase in the import of crude oil.

Chinese economic growth may be higher than the IMF’s previous forecast, updated in October, and reach 5.4%, the fund said in a statement following the mission’s visit to China. In 2024, however, growth will slow to 4.6%. Both estimates turned out to be 0.4 percentage points higher than in the October forecast – the adjustment in the fund was associated with stronger data for the third quarter (recall that the Chinese economy grew by 4.9% in annual terms), as well as with the announcement of additional incentive measures (in particular, to support the real estate market).

China’s trade statistics, however, still reflect the weakness of external demand – exports from the country decreased by 6.4% year-on-year (from the beginning of the year the decrease was 5.6%), imports, however, began to grow – in annual terms the figure was October increased by 3% (in September there was a decline of 6.2%). In such conditions, the trade surplus shrank from $77.7 billion to $56.5 billion. Export data did not please market participants – prices for Brent oil dropped below $83 per barrel on Tuesday. The 3% drop reflected concerns about global demand, although China’s oil imports jumped 13.5% year-on-year in October (including 3.6% in September) to 11.5 million bpd – this is about a tenth of world oil consumption.

Exports to Russia from China in October amounted to $9.6 billion, imports – $11.5 billion. Since the beginning of the year, turnover has increased in total by 29.5%, including exports – by 56.9%, imports – by 12.7% . The Russian market remained the only major market where supplies from China continued to grow (judging by cumulative data from the beginning of the year); China’s exports to Africa also increased, but at a more modest pace (by 8%, including to South Africa by 2.8 %), supplies fell to India and Brazil, as did to the EU, USA and ASEAN.

The growth in China’s import of foreign goods may indicate an improvement in domestic demand – at the end of October, the People’s Bank of China presented the main guidelines of its policy, promising to reduce rates.

This is unlikely to lead to an acceleration of inflation – according to the IMF forecast, the core indicator (minus volatile energy and food prices) will reach only 2.1% by the end of next year (the country is currently experiencing deflation), while cheap credit should help restructure accumulated debts of the regions – this problem is considered one of the most pressing.

The fund, however, calls on Beijing to change its economic model to a more sustainable one. The fund’s current forecast calls for growth to slow to 3.5% by 2028 as productivity growth slows and the population ages. “Excessively high savings of the population were used to finance the construction of infrastructure and housing, this process was accompanied by a decrease in profitability and an increase in the debt burden,” the statement following the mission said. At the same time, the fund notes the persistence of increased financial risks amid a decline in asset quality. To adapt to weaker external demand and “absorb external shocks,” the fund also proposes that the Central Bank of China make the yuan exchange rate more flexible.

To overcome the crisis in the real estate market, the IMF recommends allowing the bankruptcy of unviable developers, eliminating price regulations, allocating additional funds for the completion of already begun projects, and supporting developers who are able to adapt to the smaller size of the real estate market.

Tatiana Edovina