China GDP: IMF urges ‘comprehensive reforms’ to bring economy back in line with growth potential

Without reforms, China’s growth could drop to about 4 per cent on average over the next five years and 3 per cent on average between 2028-37, according to the IMF

Chinese banks issued a record 4.9 trillion yuan (US$720 billion) worth of loans in January, with a majority in form of medium- and long-term corporate lending

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China must deal with a shrinking population, an ageing workforce and slowing aggregate productivity to keep economic growth on track, the IMF says. Photo: AFP

Published: 8:01pm, 10 Feb 2023

China’s potential growth has already dropped to a level that would severely affect its development vision of doubling gross domestic product (GDP) and becoming a moderately prosperous nation by 2035, unless it makes substantial reforms in inefficient sectors, according to the International Monetary Fund (IMF).

The warning is the second time this month that the IMF has called for reforms to sustain growth, which will be the biggest test for the country’s new economic leadership team – most likely Li Qiang as premier and He Lifeng as vice-premier in charge of finance – when they take office next month.

“China’s potential growth has started falling and several headwinds suggest it will continue to slow, showing the need for comprehensive reforms of China’s growth model,” the IMF said in its Selected Issues paper, which was conducted in mid-December as China abruptly abandoned its zero-Covid strategy.

Though the Washington-based organisation has upgraded China’s growth forecast for this year to 5.2 per cent from 4.4 per cent previously, it still has concerns about the medium- and long-term outlook.

China’s potential growth fell from a peak of about 10 per cent in 2005-06 to 4.7 per cent in 2021. It could drop to about 4 per cent on average over the next five years and 3 per cent on average between 2028-37, the IMF paper said.