The International Monetary Fund (IMF) has revised China’s growth forecast for 2023, projecting a promising 5.4% expansion. The optimistic outlook is fueled by better-than-expected third-quarter growth and Beijing’s recent policy actions. However, the IMF remains cautious as it anticipates a slowdown to 4.6% in the coming year, citing persistent issues in the property market and subdued external demand.
Real Estate Challenges Persist:
According to the IMF’s First Deputy Managing Director, Gita Gopinath, real estate woes continue to exert pressure on China’s economic landscape. She emphasized that there is ongoing stress and weakness in the market, and the path to a more sustainable state will require time and careful maneuvering.
Real Estate’s Weight on the Economy:
Real estate and its related sectors have historically accounted for over a quarter of China’s economic activity. Some analysts assert that a contraction in this sector may be necessary, possibly by as much as 10 percentage points.
Beijing initiated measures to curb developers’ heavy reliance on debt for growth back in 2020, although recent actions have seen some easing of these measures. The consequences of this have included delays in apartment completion and mortgage boycotts, creating challenges for the real estate market.
Progress and Caution:
Gopinath acknowledged that some progress is being made, but there is still much work ahead. The central government can play a pivotal role by providing direct funding, thereby boosting household confidence. She also stressed the importance of a swift exit for nonviable property developers and the need for housing prices to adjust flexibly for a smoother transition.
Defining ‘High-Quality’ Growth:
China’s focus on “high-quality growth” has garnered attention, with Beijing looking beyond headline numbers and prioritizing sustainability and inclusivity. The IMF’s upgrade to China’s growth forecast is seen as a positive step, although Gopinath indicated that much will depend on China’s ability to enact the right reforms. Financial stability remains a concern, with elevated and rising financial risks. Lower capital buffers and growing asset quality risks in financial institutions are contributing to these challenges.
As China aims for high-quality growth, there are several fronts on which the nation is working to achieve this goal. The challenges posed by the real estate sector and financial stability need to be addressed, and reforms will play a significant role in shaping China’s economic landscape. The IMF’s recent visit and discussions with key Chinese authorities have shed light on these ongoing efforts, underscoring the nation’s commitment to securing a sustainable and inclusive economic future.