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IMF: China can spark recovery

By ZHAO HUANXIN in Washington | | Updated: 2020-11-05 12:40
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Workers talk near a tunnel boring machine at Shanghai Tunnel Engineering Ltd on Thursday. China's GDP growth in the first three quarters turned positive at 0.7 percent year-on-year, according to the National Bureau of Statistics. FANG ZHE/XINHUA

With its rapid return to growth, China could lend an impetus to the world's economic recovery by expanding vaccine access, providing debt relief and sustaining global infrastructure investment, the International Monetary Fund said Wednesday.

Confirming that the gross domestic product growth of the world's second-largest economy is projected at 1.9 percent in 2020 and 8.2 percent in 2021, the IMF, as it predicted last month, highlighted the role of China in helping overcome "several of the major challenges" facing the global economy, which it forecast to contract by 4.4 percent this year.

"This includes supporting international efforts to expand access to a vaccine, providing debt relief to low-income countries and sustainable financing for global infrastructure investment, and tackling climate change," the IMF said at the conclusion of its "Article IV Mission" consultation with China.

Early last month, China officially joined the COVAX, an international initiative aimed at ensuring equitable global access to COVID-19 vaccines, becoming the largest economy to support the initiative so far, according to earlier media reports.

IMF conducts Article IV Mission consultations with its members annually, in which an IMF team of economists visits a country and discusses with government and central bank officials how to assess a member's economic health and to forestall future financial problems.

This year's tour was done virtually due to the COVID-19 pandemic, which has prompted new lockdowns in many parts of the world and has resulted in the worst global downturn in decades.

"The COVID-19 pandemic has inflicted significant human and economic costs on China, but a major containment effort has helped contain the spread of the virus, and macroeconomic and financial policies have mitigated the crisis' impact and quickly returned the economy to growth," IMF First Deputy Managing Director Geoffrey Okamoto said.

Despite the pandemic, important reforms continued in China, including steps taken to further open the financial sector, advance household-registration reform, and improve intellectual property protection, Okamoto said in an end-of-mission release.

China's GDP grew by 4.9 percent year-on-year in the third quarter, faster than the 3.2 percent growth between April and June, suggesting "a rapid return to the pre-COVID trend", according to US economist Stephen Roach, also former chairman of Morgan Stanley Asia.

During the Article IV Mission, Okamoto held virtual meetings with People's Bank of China Governor Yi Gang and other officials to discuss the country's policy mix to secure balanced growth against the headwinds from the global pandemic.

"While the recovery is advancing, growth remains unbalanced as it relies heavily on public support while private consumption is lagging," Okamoto said, cautioning that China's outlook faces downside risks, stemming from rising financial vulnerabilities and the increasingly challenging external environment.

To secure a balanced recovery, macroeconomic policies need to remain supportive and their effectiveness enhanced, with fiscal policy staying slightly expansionary and shifting from spending on infrastructure toward strengthening social safety nets and promoting green investment, the IMF said in the release.

It also said China and its trading partners should work together to build a more open, stable and transparent rules-based international trade and investment system.

The 189-member lender's latest assessment seems to match the development trends in China, which has pledged to further open up and ramp up support to economic globalization.

President Xi Jinping, in a video speech at the China International Import Expo (CIIE) in Shanghai on Wednesday, called on all countries to safeguard the multilateral trading system, improve the rules of global economic governance, and build an open world economy.

"Our aim is to turn the Chinese market into a market for the world, a market shared by all, and a market accessible to all," Xi said. "This way, we will be able to bring more positive energy to the global community."

Nicholas R. Lardy, a senior fellow at the Washington-based Peterson Institute for International Economics and an expert on the Chinese economy, said China has substantially liberalized access by foreign firms to its immense domestic financial market and is now an increasingly important destination for foreign portfolio investment.

"Chinese regulators have allowed multiple securities, asset management, insurance and other financial firms from the United States, Europe and Japan to convert existing minority positions in joint ventures with Chinese partners to majority foreign-owned firms and have licensed a number of new wholly foreign-owned financial firms," Lardy noted in an analysis.

China's growth momentum is important "for countries that are connected to the Chinese economy through global value chains", where demand from China is an engine for growth, IMF Managing Director Kristalina Georgieva said in mid-October.

Imports by China rose by 4.3 percent year-on-year in the third quarter of 2020, according to the customs statistics.

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