IMF: China’s bonds, stimulus will buoy world’s No 2 economy despite property crisis
- Asia official with Washington-based agency points to PBOC’s policy moves, as well as China’s infrastructure spending, as economic bellwethers
- But years-long property crisis, local-level government debt and overcapacity remain high hurdles to overcome
Lavish bond issuances and financing for local governments should keep the US$18 trillion Chinese economy stable this year despite a festering property crisis, an IMF Asia official said on Thursday.
Shockwaves from shifts in the world’s second-largest economy have rapidly rippled into other countries, from Southeast Asia to the West, where companies trade with China or invest in manufacturing for exports or in the giant domestic market.
To that end, the Washington-based International Monetary Fund also warned this week about knock-on effects from China’s export prices and increases in capacity.
Beijing’s monetary and fiscal policy support, including two pledges to issue bonds, will keep the broad economy humming this year, said Thomas Helbling, deputy director of the IMF’s Asia and Pacific Department. He also pointed to infrastructure spending.
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Fiscal support refers to government spending, while monetary support covers interest rates and banking regulations.
“We see a moderate slowing of growth in 2024 as the pandemic effect will wane and China will see some impact on the economy, but the government has stepped up macro support,” Helbling told the Post.
China’s housing market issues began in 2020 with a government policy that stripped weak developers of funding guarantees and prompted defaults into the billions of US dollars.
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Some local governments have amassed heavy debt over a subsequent fall in property prices, leading to a lack of money for developers to buy land and give those governments a cut of the revenue.
Over the next several years, the central government will give local-level authorities options to refinance, Helbling said. “We have seen that local government spending in the aggregate has not suffered,” he said.
The IMF on Tuesday maintained an earlier prediction that China’s economic growth would ease from 5.2 per cent last year to 4.6 per cent this year, and to 4.1 per cent in 2025.
The agency cautioned separately on Thursday about impacts abroad from China’s supply capacity and prices.
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A longer slowdown in China would be “bad news” for the Asia-Pacific region, IMF Asia-Pacific director Krishna Srinivasan said in a draft speech before the agency’s release of its Regional Economic Outlook.
While Chinese policy tools can help other countries, he said, “policies that boost China’s supply capacity would reinforce deflationary pressures and could provoke frictions”, he said.
US and European officials have expressed worry this year that China is running an overcapacity of products such as batteries and electric vehicles, as the trend threatens to suppress prices overseas.
A fall in export prices in late 2023 pressured the profit margins of China’s competitors, and export volumes “can also suffer” in countries such as Vietnam or South Korea that produce goods similar to those of China, Srinivasan added.
On the fiscal side, Srinivasan said the IMF expects that “public” investment in China and India will “contribute disproportionately to growth” this year.
Consumers must spend more of their disposable income before the housing oversupply is bought, he said. “For the housing market to improve, consumer confidence must come back first,” Liang said.
S&P Global Ratings, which expects China’s economy to grow by 4.6 per cent in 2024, said in its latest quarterly economic update that there will be “continued property weakness and modest macro policy support” this year.
