Stimulus ‘should keep economy stable’

Beijing’s plans will help country ride out property slump, IMF official says

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 has said.

Shockwaves from shifts in the world’s second-largest economy have rippled into other countries where companies trade with China or invest in manufacturing for exports or in the giant domestic market.

To that end, the 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, would keep the broad economy humming this year, said Thomas Helbling, a division chief in the IMF’s Asia and Pacific Department. He also pointed to infrastructure spending.

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 said.

Although China’s first-quarter data showed signs of economic strength, the IMF said on Tuesday a four-year property slump would continue to affect the economy.

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.

Some local governments have amassed 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.

Last month, China said it would issue 1 trillion yuan worth of “ultra-long-term special government bonds” this year, after October’s 1 trillion yuan in sovereign debt sales.

Over the next several years, the central government would 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 yesterday about impacts abroad from China’s supply capacity and prices.

A longer slowdown in China would be “bad news” for the AsiaPacific region, IMF Asia-Pacific director Krishna Srinivasan said in a draft speech before the agency’s release of the Regional Economic Outlook.

While Chinese policy tools could help other countries, he said, “policies that boost China’s supply capacity would reinforce deflationary pressures and could provoke frictions”.

Officials from the United States and Europe have expressed worry 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 produced goods similar to those of China, Srinivasan said.