China growth ‘hinges on calibrating Covid policy’

As global growth slows down, calibrating coronavirus containment measures will be critical for recovery of the world’s second largest economy, the head of the International Monetary Fund (IMF) said yesterday.

IMF managing director Kristalina Georgieva said the government should take more action to safeguard financial stability.

“Activity in China is held back by ongoing Covid-19 lockdowns and challenges in the real estate sector,” she said at the International Financial Forum in Guangzhou via video link.

“Further calibrating the Covid strategy to mitigate its economic impact will be critical to sustain and balance the recovery.”

The IMF expects the world economy to grow 2.7 per cent next year, but there is a 25 per cent probability that growth will fall below 2 per cent, while at least one third of the global economy is expected to be in recession.

US Federal Reserve Chair Jerome Powell said on Wednesday that China’s zero-Covid restrictions were dragging on global supply chains.

Georgieva and World Bank president David Malpass told the Reuters NEXT conference in New York on Thursday they would travel to Beijing next week to join a meeting with heads of other international institutions and Chinese authorities to discuss the country’s approach to debt relief for poorer countries, coronavirus policies, the property sector and other economic issues.

Fighting stubbornly high inflation is the biggest challenge for most economies, including the United States, which has been aggressively raising rates to rein in consumer prices, and the European Union where it was 10 per cent in November.

But in China, where inflation has remained subdued, there was more room for accommodative monetary policy, Georgieva said.

People’s Bank of China governor Yi Gang said yesterday that China’s inflation was expected to stay in a moderate range next year.

“China’s current inflation rate is around 2 per cent, thanks to stable energy prices and bumper harvest of grain,” Yi said at a seminar co-hosted by Thailand’s central bank and the Bank for International Settlements.

China’s consumer price index rose by 2.1 per cent in October from a year earlier, down from a 2½-year high of 2.8 per cent growth in September, below the annual target of “around 3 per cent”.

Georgieva said China could reignite consumption-led growth with more fiscal support to vulnerable households and strengthening social safety nets.

Zhang Zhiwei, chief economist at Pinpoint Asset Management, said it was not yet clear whether China would introduce more expansionary policy to give the economy support next year.

“Now we cannot see clearly where the money will come from. Whether there will be a relatively large fiscal deficit and more government bonds will be issued, this is a big question mark,” Zhang said.

Georgieva also said China had a leading role to play to prevent further fragmentation of the world economy.

“Splitting the world into blocs that stop trading with each other would surely knock off trillions of global [gross domestic product],” she said. “The world simply cannot afford fragmentation.”

Addressing food insecurity, debt crises and climate change were the key sectors for global collaboration, she said, and it was important China was involved.

To reduce the risks of debt crises, large creditors like China, together with the private sector, had a responsibility to help ease the burden, she said.

“The Group of 20 Common Framework has made progress with Chad and Zambia, but it must become faster and more predictable,” Georgieva said.

Western countries have accused China, the world’s largest sovereign creditor, of delaying efforts to restructure the loans of some indebted countries.

China has argued that highinterest loans from private Western lenders account for most of the burden on countries in Africa, thus they should also engage more in such a process.

A recent report from the China Africa Research Initiative at the Johns Hopkins University School of Advanced International Studies moved to dispel the narrative of a so-called debt trap around Beijing’s Belt and Road Initiative.

Activity in China is held back by … lockdowns and challenges in the real estate sector

KRISTALINA GEORGIEVA, IMF CHIEF