The International Monetary Fund on Wednesday sharply raised its growth forecast for China’s economy this year and next, citing surging exports and heavy investment in new factories.
The IMF now projects China’s growth to be 5% this year and 4.5% in 2025, 0.4 percentage points higher each year than the fund’s forecast just six weeks ago.
China’s gross domestic product grew 5.2% last year as the economy recovered after nearly three years of strict pandemic countermeasures that included numerous local lockdowns and mandatory quarantines. Many economists, including the IMF, had expected growth to slow this year due to a severe contraction in China’s housing market and a slowdown in domestic spending.
But even as property prices continued to fall and retail sales growth slowed, China’s economy thrived instead, growing at an annual rate of about 6.6 percent in the first three months of the year on the back of surging exports and strong factory investment.
The Chinese government is taking steps to address plummeting home prices, but it faces major challenges: Years of overconstruction leave 4 million new apartments unsold, and conservative estimates put as many as 10 million have been sold by developers but not yet completed.
Many owners of vacant apartments now face years of expensive mortgage payments and realize there is little chance of their apartments increasing in value significantly.
Many analysts have expressed skepticism about a plan announced this month for local governments to buy large numbers of vacant apartments and convert them into affordable housing.
Beyond housing, China has been investing heavily this year in factories that already dominate global markets for a wide range of products, from furniture to electric cars and solar panels.
U.S. Treasury Secretary Janet L. Yellen has openly criticized China’s industrial strategy in recent months, warning that China should not be allowed to dramatically increase its exports to make up for its domestic economic difficulties. She has begun to garner international support by imposing tariffs and other restrictions on low-cost Chinese exports that she fears could threaten Western industries and jobs. President Biden announced this month that he would sharply raise tariffs on Chinese imports, including electric vehicles and solar panels.
China’s top leader, Xi Jinping, said China’s policies were helping the world by increasing global supplies of goods and easing international inflationary pressures.
Last month, Yellen criticized the IMF for not challenging China’s manufacturing efforts, which she said were creating unnecessary excess capacity and allowing Chinese companies to export their products overseas at very cheap prices.
Chinese officials have rejected the term overcapacity as a misrepresentation of their economy, and it was avoided in the IMF statement on Wednesday. The IMF also avoided any mention of China’s trade surplus, which in manufactured goods is now equivalent to one-tenth of the economy’s total output.
But the statement called on China to begin rolling back policies that support its manufacturing industry.
“China’s use of industrial policy to support priority sectors could lead to a misallocation of domestic resources with implications for trading partners,” the IMF said.
The IMF also said China should take comprehensive measures to address problems in the housing market and stem weakness in domestic spending, and recommended longer-term efforts to strengthen the social security network and services sector.
Mr Xi has been cautious about increasing social security spending: “When it comes to social security, we must avoid setting goals too high or going too far, and avoid falling into the welfarism trap that breeds laziness,” he said in a speech three years ago.
China’s economic growth is expected to slow in the coming years as its decades-long “one-child” policy gradually shrinks its workforce and productivity gains slow now that it has caught up with or surpassed the West in many technologies. IMF staff projected growth to slow to 3.3% by 2029, in a statement on Wednesday.
