On 2 August 2024 the IMF released a report following consultations with China under Article IV of the IMF’s articles of agreement.

The report notes that China’s economy has remained resilient even though there is continuing weakness in the property sector. Economic growth was 5.2% in 2023, and 5% year on year in the first half of 2024. The economic growth has been driven mainly by strong public investment and by the recovery of private consumption following the pandemic. Net exports have also made an increased contribution recently. Economic growth is projected to be generally in line with the target in 2024, and the medium term growth is projected to gradually decline to about 3.3% in 2029 owing to challenges from weak productivity and an aging population.

There is uncertainty in the economic outlook owing to the possibility of a deeper contraction in the property sector combined with high debt levels. This could lead to disinflationary pressures and adverse feedback loops. There are also external risks from the possibility of a greater weakening of external demand, and an escalation of the pressures for fragmentation in the global economy. However, decisive policy action to facilitate adjustment in the property sector and the implementation of market-oriented structural reforms could lead to better economic outcomes.

The IMF welcomed the ongoing efforts to facilitate the adjustment of the property sector and boost the confidence of homebuyers. They emphasised that there is a need for a comprehensive policy package to facilitate a more efficient transition for the property sector. The IMF report is in favour of the timely exit of nonviable property developers from the market and greater house price flexibility. Central government financing could be deployed to protect buyers of unfinished housing, although there would be associated fiscal costs.

A neutral structural fiscal stance in 2024 could help consumer confidence and support domestic demand. A reorientation of expenditure away from investment and toward households could be implemented through an expanded social protection system, and a more progressive tax regime. A gradual decline in the structural fiscal deficit could begin in 2025.

Stabilizing public debt will need sustained fiscal consolidation in the longer term, through a reduction of off‑budget investment and by wide‑ranging tax and social security reforms. There is a need for improved monitoring of local government finances; reduction of structural expenditure‑revenue gaps; and the establishment of subnational fiscal rules.

The IMF report notes that there is a need for greener and more balanced growth. Efforts to rebalance demand toward consumption are important, together with reforms that boost the potential of the service sector as a driver of growth. The contribution of the service sector could be increased by reducing some of the current regulatory barriers. Other reform priorities include the implementation of reforms to state owned enterprises; a gradual increase in the retirement age; and stronger labour market policies. The IMF report also welcomed China’s decarbonization efforts and its success in the deployment of renewable energy. The report called for an acceleration of power sector reforms and reforms to the emission trading system.