Despite a higher growth forecast for this year, the International Monetary Fund (IMF) sees considerable risks for China’s economic development. In particular, the unpredictable further course of the pandemic, the troubled real estate market and weaker global demand could jeopardize growth, the IMF announced on Friday. Nevertheless, the fund forecasts economic growth of 5.2 percent for this year. In the fall, the IMF had predicted growth of 4.4 percent.
The Chinese economy grew by 3 percent last year. The zero-Covid strategy with lockdowns and other restrictions in particular slowed down the economy, which is also suffering from a severe real estate crisis, high levels of debt and weak domestic demand. At the beginning of December, Beijing reversed course and abolished most of the corona measures after about three years. After the coronavirus then spread rapidly, life in many cities returned to normal.
Recovery in China could also help Germany
The first economic data point to a recovery. The official Purchasing Managers’ Index jumped sharply in January, which points to a better mood among industrial companies. More people have also been traveling during the Chinese New Year celebrations in recent weeks. Shopping centers and cinemas are better attended.
A robust recovery in China would also help Germany, which has strong economic ties with the People’s Republic. The mood among German companies is brightening. “By moving away from zero-Covid, the Chinese government has set the course for a trend reversal in 2023,” said Jens Hildebrandt, executive board member of the German Chamber of Commerce in Beijing. Growth in the first quarter is still being dampened by the effects of the wave of infections. However, a significant recovery is expected from the second half of the year.
IMF recommends reforms
Overall, Chinese growth accounts for about a quarter of global economic growth this year, said Thomas Helbling, deputy director of the IMF’s Asia-Pacific Department. The reason for the stronger growth is an increase in private consumption due to the earlier than expected opening. Above all, contact-intensive services played a major role, said Helbling. This also includes tourism.
In order to further support domestic demand, the government should give households more support and strengthen the social systems, the IMF advised. The state should also make more funds available to complete stalled real estate projects in order to restore confidence in the market. Structural reforms should shrink the real estate market to health in the medium term.
China should also open up its market further and boost productivity through more competition between private and state-owned companies – especially in view of the number of people in work, which is falling due to the aging of society, the IMF explained. Internationally, China could make a significant contribution to alleviating the debt burden of many countries.
