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IMF official: How China can handle growth headwinds

By YIFAN XU in Washington | | Updated: 2022-10-11 21:22
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Staff members make industrial robots in a precision machinery company in Yantai, East China's Shandong province on June 8, 2022. [Photo/VCG]

As one of the largest economies and a vital engine of the global economy, China can counteract growth headwinds with the right policies, an International Monetary Fund (IMF) official said Tuesday.

Given the giant size of the Chinese economy, the significant role that China has been playing in global economic growth and the Chinese economy's "strong trade linkages in Asia as well as to commodity exporters and major global production hubs in other continents," Joong Shik Kang, IMF's deputy China mission chief, offered his views on how China can face economic challenges.

"This means that the recent slowdown in growth in China is also weighing on global growth," Kang said during an interview with China Daily.

However, he also said that the IMF believes that China can counteract growth headwinds with the right policies.

"For example, a fiscal policy that shifts its composition toward vulnerable households would support private consumption and lift growth in China and elsewhere. For a more balanced and sustainable recovery, it is critical to start working to pave the way for a safe exit from the zero-COVID strategy, including by reaccelerating the pace of vaccinations and making full use of vaccines, especially for the undervaccinated elderly," Kang said.

In the October World Economic Outlook released Tuesday, the IMF predicted China's real GDP to grow at 3.2 percent this year and 4.4 percent in 2023. In the last outlook released in July, the numbers were 3.3 percent and 4.6 percent, respectively.

Global growth is forecast to slow from 6 percent in 2021 to 3.2 percent in 2022 and 2.7 percent in 2023, which is the weakest growth profile since 2001, except for the global financial crisis in 2008 and the acute phase of the COVID-19 pandemic in 2020, the report said.

Kang told China Daily that there is significant resistance to medium-term growth in China, such as a shrinking workforce and lower productivity growth.

"However, the right policies can help lift growth potential and, to that end, structural reforms should be a priority," he noted.

"Accelerating market-based structural reforms — such as a further opening-up of domestic markets, reforming SOEs (State-owned enterprises), ensuring competitive neutrality between SOEs and private firms, and removing local protectionist barriers while promoting green investment — will help revitalize productive growth and boost potential growth over the medium to long term."

According to the IMF report, inflation that is higher than seen in several decades and the raising of interest rates by major economies in response to hyperinflation are among the significant turbulent challenges the global economy is experiencing.

Inflation in the US soared to 9.1 percent in June from less than 2 percent two years ago, while the August consumer price index (CPI) reading was 8.3 percent.

"For China, the main effect (of higher interest rates) would be through the resulting slowdown in growth across trading partners as demand softens. Together with the fading of pandemic-specific factors that had provided a temporary boost to exports, this means that sustaining growth in China going forward will depend more on domestic demand," said Kang,

"This would be best achieved through strengthening the social projection system and a recomposition of expenditures towards households that would lower the need for high precautionary savings," Kang suggested.

To fight global hyperinflation, the IMF report suggested monetary tightening, which is critical to stem inflation, and fiscal protection of vulnerable groups.

The IMF report forecast global inflation to rise to 8.8 percent in 2022 and slowly drop to 6.5 percent in 2023. Inflation in China, however, is projected to be 2.2 percent in 2022 and 2023.

"This means that monetary policy should remain accommodative to keep debt-servicing costs low and prevent abrupt tightening of financial conditions," Kang said.

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