IMF warns of unbalanced China recovery, policy uncertainty

4:35 am Friday, January 28th, 2022

BEIJING (Reuters) – The International Monetary Fund said that China’s economic recovery is well advanced but imbalanced due to weak consumption, and also warned of uncertainty brought by regulatory crackdowns on the technology sector and slowing productivity.

A less favourable base of comparison as well as weak consumption and headwinds from flagging real estate investment will be key drags on growth this year, the IMF said in a report released Friday, after the 2021 Article IV consultation with China.

“China’s recovery is well advanced, but it lacks balance and momentum has slowed,” it said, citing COVID-19 outbreaks’ effect on consumer spending and a property market downturn amid Beijing’s efforts to deleverage the sector.

The IMF forecasts the world’s second-largest economy will grow 4.8% in 2022 and 5.2% in 2023, down from 8.1% growth last year.

Strong supportive measures from the People’s Bank of China are expected in the coming months to stabilise a faltering economy. China saw a strong recovery from the pandemic-induced slump but growth slowed sharply in the second half of last year.

The IMF report also noted a flurry of “seemingly uncoordinated” regulatory actions against technology firms and other sectors which is viewed in the market as “undercutting the role of private enterprises,” and urged greater transparency and predictability.

China last year launched a regulatory crackdown against tech giants, private education companies and other firms, targeting unfair competition and data governance.

Such reforms could help growth but can damage market sentiment which in turn could lower investment, said the IMF.

The IMF also called for measures to ensure fair competition between China’s private firms and its state-owned enterprises (SOEs), warning that such reforms are needed to deal with slowing productivity growth.

Chinese authorities said that “external decoupling pressures are adding critical headwinds to productivity growth which, in their view, necessitate an increased role of SOEs in strategic sectors,” according to the report.

Beijing has warned of the dangers of the “decoupling” of its economy with that of the United States amid increased tensions between the two countries.

(Reporting by Gabriel Crossley; Editing by Cynthia Osterman)