SHANGHAI: China’s economic recovery is subject to a “high degree of uncertainty” and it must tackle a property market crisis, but rebounding consumer confidence will boost the hard-hit regional tourism market, the International Monetary Fund said today.
The assessment, laid out in the Washington-based organisation’s annual country report, comes after the IMF lifted its forecast for the world’s No 2 economy to 5.2% this year, up from an earlier 4.4% as consumption recovers following Beijing’s move to abandon growth-sapping Covid curbs in December. China’s economy expanded 3% in 2022, among its weakest growth rates in decades.
“China’s economy is set to rebound this year as mobility and activity pick up after the lifting of pandemic restrictions, providing a boost to the global economy,” the IMF said. “Even so, China still faces significant economic challenges. The contraction in real estate remains a major headwind, and there is still some uncertainty around the evolution of the virus. Longer-term, headwinds to growth include a shrinking population and slowing productivity growth.”
The country’s property market, which accounts for about one quarter of gross domestic product, has been battered by a developer debt crunch that led to scores of residential housing projects being left unfinished, triggering widespread anger among homeowners and plunging confidence in the sector.
Today, the IMF credited policy measures designed to resuscitate the battered real estate sector.
“[But] additional action is needed to end the real estate crisis, including to increase further funding for completion of troubled projects and promote market-based restructuring,” it said. “This would also help restore homebuyer confidence and contain financial stability risks.”
The IMF’s staff report also recommended a series of structural reforms over the medium-term, warning that without them, China’s growth could fall below 4% in the next five years in the face of a shrinking workforce.
Among the reforms, the IMF suggested China strengthen its social safety net to counter a pile up of savings among jittery households to spur property demand and broader growth.
China’s household savings last year jumped by a record 17.84 trillion Chinese yuan (US$2.6 trillion), according to its central bank data.
“An ambitious but feasible set of reforms can improve these prospects, importantly in a way that is inclusive by raising the role of household consumption in demand,” the IMF said. “Reforms such as gradually lifting the retirement age to increase labour supply, strengthening unemployment and health insurance benefits, and reforming state-owned enterprises to close their productivity gap with private firms would significantly boost growth in coming years.”
Meanwhile, China’s neighbours could benefit from a surge in post-pandemic tourism as pent-up demand unleashes a stream of Chinese travellers to Asian nations and beyond.
Outbound travel bookings on the Trip.com online platform during last month’s Lunar New Year holiday surged by 640% annually with Bangkok, Singapore and Kuala Lumpur among the top destinations for Chinese travellers.
“The rebound in consumption has perhaps smaller impact on the global economy than rebounds that were driven by other factors,” Thomas Helbling, deputy director at the IMF’s Asia and Pacific department, said in an online briefing today. “In the near term, sectors such as tourism and travel abroad will benefit the most.
“So, the prospects for a considerable increase in tourism from China to these countries will be welcomed and will help,” he added.