IMF Warns of Prolonged Economic Challenges for China

The International Monetary Fund (IMF) has projected a continued economic decline for China over the next four years, citing challenges such as a rapidly aging population, elevated unemployment, and a property crisis. In its report released on Friday, the IMF anticipates China’s economic growth to decrease to 4.6% in 2024, down from 5.2% in 2023, with a further decline to 3.4% by 2028.

The real estate market, historically representing a significant portion of China’s GDP, has become a focal point of concern. A Hong Kong court’s order for the liquidation of China Evergrande, grappling with over $300 billion in debt, underscores the challenges in the property sector. The IMF analysis suggests a potential 30% to 60% drop in real estate investment over the next decade relative to 2022 levels.

The report warns of the negative implications for domestic growth and trading partners if comprehensive restructuring policies for the troubled property sector are not implemented. Zhang Zhengxin, the IMF’s executive director for China, expressed disagreement with the report’s pessimistic outlook, noting improvements in real estate market transactions since August 2023.

Christopher Tang, Senior Associate Dean of Global Initiatives at UCLA Anderson School, highlighted the interconnectedness of the real estate crisis with consumer spending habits, emphasising the domino effect on the economy. Ali Wyne, Senior Research and Advocacy Adviser for U.S.-China at the International Crisis Group, added that local government debt and geopolitical tensions with Western democracies contribute to China’s economic headwinds.

The IMF’s recommendations for China include encouraging citizens to explore new investment avenues and pursuing market-oriented reforms. Tang emphasised the need for China to adopt demand-side economic policies, loosen market regulations, and promote a freer market to stimulate job creation through entrepreneurship and innovation.

As China navigates these economic challenges, the IMF’s projections underscore the importance of comprehensive reforms to address structural issues and promote sustainable growth.