By Lalit K Jha
Washington: China is recovering quickly ahead of most major economies, but the recovery is still unbalanced and faces significant downside risks, the IMF said, projecting an 8% growth rate for the world’s second-largest economy in 2021.
However, the main concern about China’s recovery from the International Monetary Fund (IMF) is the lack of balance, said Hlge Berger, mission chief for China and deputy director of the IMF’s Asia and Pacific department.
The recovery still relies mainly on public support. Private investment has strengthened recently, but consumption is lagging behind. Growth rates and consumption have recently been higher, but the level of consumption compared to its pre-crisis trend is still rather low, he told reporters on a conference call on Saturday. China 2020 Article IV staff report released.
“China is recovering quickly ahead of most major economies, but the recovery is still unbalanced and faces significant downside risks. We’re seeing growth of around 2% in 2020 and around 8% in 2021. The numbers for December have been surprisingly on the upside, so there are upside risks to this forecast, ”Berger said.
On the other hand, he said there are significant downside risks. At the national level, there is still a risk of a pandemic. In addition, the external environment has generally become a bit more difficult for China and its economic relations with other countries.
“This is a big reason why we think there is still an output gap this year of 1.8%. It is the difference between what the economy can potentially have in terms of GDP and what we’re actually waiting in terms of demand, so that’s where this lack of balance comes in, and it has important implications for how macroeconomic policies should be conducted, ”said Berger.
In the short term, he said, the IMF is not withdrawing its support for macroeconomic policy in China prematurely. And that’s the advice other countries are getting from the IMF, so it’s a bit of a global concern, but it also applies to China.
“The second implication of our analysis of the outlook and the risks surrounding it is that we need to ensure that we adjust the composition of macroeconomic support from investment to support to households. This will directly help the consumption. This has implications, of course, for our policies to strengthen the social safety net, ”said Berger.
Noting that structural reforms have progressed despite the pandemic which is quite an achievement in China, Berger said that this reform effort has been mainly in the area of opening up financial services to the outside world, and less in the real sector. Real sector reforms, however, are important, he said.
While productivity has increased in the past, productivity levels in China are still relatively low compared to the global frontier, he said. Average productivity in all sectors is around 30 percent of the global frontier.
The external environment has become a bit difficult in recent years and if it stays that way, it will be more difficult to take advantage of the improvements in external productivity through the normal means of trade and FDI, he said.
China, Berger said, can also help others overcome the challenges of the crisis.
“There we note China’s very useful commitment to provide debt relief to low-income countries,” he added.
China is the world’s second largest economy behind the United States.