Uncertainty surrounding China’s economy remains high this year, dragged down by the ongoing property market slump, the International Monetary Fund (IMF) said. It expects China’s gross domestic product (GDP) to grow by 4.6% this year, before slowing to 4% in 2025, as a result of ongoing property sector strains, which would further dampen private demand and confidence, and also add to local government budget strains. “Uncertainty surrounding the outlook is high, particularly given the existing large imbalances and associated vulnerabilities,” the IMF said. “Staff estimate that, in such an adverse scenario which entails a deeper and more prolonged contraction in the property sector, GDP in 2025 could be 1.8% lower compared to the baseline of 4%.” Last year, China’s economy grew by a higher-than-expected 5.2%, and the government is again expected to set a GDP growth target of around 5% for 2024.
The outlook was included in the IMF’s review of its Article IV consultation, which took place in China over a month in October and November last year. Its Article IV Mission sends economists to member countries to monitor economic and financial policies and provide recommendations. China’s recovery from the coronavirus pandemic has been patchy, weighed down by a prolonged real estate market downturn, a local government debt crisis, weak demand and heightened geopolitical tensions. The IMF said further shocks to growth and earnings amid high debt levels in the property sector and within some local governments could bring about broader balance sheet stress and weaker lending capacity, including at smaller local financial institutions.
The IMF also brought up data transparency issues with the Chinese authorities during its visit last year, including the suspension of its youth unemployment data. While the reliability of China’s economic data has been a regular topic of discussion among observers over the years, concerns of its true economic performance grew following the abrupt halt of the youth jobless data in August. The National Bureau of Statistics (NBS) has since revamped the jobless figures for the 16 to 24 age group, resuming its release in January after a six-month suspension. The IMF also highlighted “significant” gaps in quarterly GDP data, general government figures and details on off-budget entities, including local government financing vehicles, which are used by local authorities to borrow money off the balance sheet. There have also been discrepancies among official sources in balance of payment and customs trade data, according to the IMF.
“Greater transparency” is needed concerning China’s foreign exchange interventions and in its recording methods for public sector foreign assets to “help explain the widening divergence between changes in official foreign assets and accumulated changes in foreign reserves recorded in the balance of payments”, the IMF added. China’s uses of state subsidies were also included as part of the discussions between Chinese officials and the IMF. The IMF has warned the rising use of subsidies by some of the world’s largest economies has contributed to a significant increase in global trade tensions. In the review, the IMF said that China’s state intervention and use of industrial policies to develop home-grown technologies and enhance self-reliance may contribute to excess capacity in targeted sectors, distort resource allocation, and create an uneven playing field in relation to private enterprises, the South China morning Post reports.
Profits of China's major industrial enterprises fell 2.3% in 2023, continuing a month-on-month narrowing that began in March. State-owned enterprises achieved total profits of CNY2.26 trillion in 2023, down 3.4% year-on-year, while private enterprises had total profits of CNY2.34 trillion, up 2%, NBS data showed. While the total profits of major industrial enterprises declined amid the multiple challenges at home and abroad, the narrowing trend has sent a positive signal that the Chinese economy is gradually overcoming various difficulties and stabilizing on an improving trend. In terms of the moving trend of industrial profits throughout the year 2023, major industrial enterprises' profits saw a sharp narrowing of decline, given the year-on-year decrease of 22.9% in January-February. By quarter, the profit of industrial enterprises in the first quarter of 2023 fell by 21.4% year-on-year, with a 12.7% p fall in the second quarter, before recording a 7.7% gain in the third quarter and a 16.2% increase in the fourth. In December, profits of industrial enterprises rose by 16.8 % year-on-year, growing for a fifth consecutive month, according to the NBS. Due to the rapid rise in shipbuilding orders and the record high automobile production, the transport equipment industry saw profits jump by 22% year-on-year, while profits of the automobile industry increased 5.9%, the Global Times adds.
