China GDP: IMF cuts 2021 growth forecast citing US tech decoupling, domestic debt, Hong Kong risks

Name: Coronavirus: What’s going to happen to China’s economy?
Uploaded: 2021-01-08T13:00:19.000Z
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China economy forecast to grow by 7.9 per cent in 2021 by International Monetary Fund, slower than previously predicted

Strained US ties could cut off dollar funding in Hong Kong and access to technology, the fund warns, while domestic debt risks also cited

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China will grow by 7.9 per cent this year, the IMF forecasts, down from its previous prediction of 8.2 per cent growth made in October. Photo: AFP

Cissy Zhou

Published: 9:00pm, 8 Jan 2021Updated: 10:53pm, 8 Jan 2021

The International Monetary Fund (IMF) has trimmed back its growth projection for the Chinese economy in 2021, citing headwinds from technological decoupling with the United States and domestic financial risks, to restrictions on fundraising via Hong Kong for Chinese companies.

China will grow by 7.9 per cent this year, the fund forecasts, down from its previous prediction of 8.2 per cent growth made in October.

While few other nations will achieve such a level of growth, the downgrade is a reflection on an increasingly hostile geopolitical climate and challenging global economic conditions.

In its latest review of the Chinese economy, published on Friday, the IMF warned that worsening US relations could accelerate technological decoupling and trim 1.8 per cent from China’s real gross domestic product (GDP) over the long term. The US economy would see 1.1 per cent trimmed from real GDP in the long run under such a scenario, the IMF said.

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Restrictions on financial flows through Chinese financial institutions operating in Hong Kong could adversely affect the country too, the fund said.

Hong Kong accounts for about one-third of China’s total equity financing, two-thirds of offshore bond issuance, and 60 per cent of inward and outward direct investment, the agency said after its economists recently visited China to assess its economic and financial conditions.

The US this week threatened new sanctions on Hong Kong and China for the crackdown on opposition politicians which saw more than 50 arrests in a dawn raid in which 1,000 police officers swept the city. There has been some speculation that the US could attempt to restrict US dollar fundraising access for Chinese firms in Hong Kong in the final days of the Trump administration.