IMF estimates 6.4% growth rate for China

The IMF increased its estimate for China’s average annual growth rate through 2020, while warning that it would come at the cost of rising debt that increases medium-term risks to growth.

China’s economy will expand at an average pace of 6.4 per cent annually from 2017 through 2020, compared with a 6 per cent estimate a year earlier, the IMF said in its Article IV review. Household, corporate and government debt will increase to almost 300 per cent of GDP by 2022 from 242 per cent last year, the fund estimated.

President Xi Jinping has been pushing financial regulators to address excessive borrowing at state enterprises and has said their indebtedness is “the priority of priorities”. But ending the addiction to debt requires measures that include allowing companies to fail and sweeping shifts in the way capital is allocated that policymakers have yet to fully embrace.

“Given strong growth momentum, now is the time to intensify these deleveraging efforts,” the IMF said.

“Reform progress needs to accelerate to secure medium-term stability and address the risk that the current trajectory of the economy could eventually lead to a sharp adjustment.”

Lending to the private sector rose 16 per cent in 2016, twice the pace of nominal GDP growth, and since 2008 has risen about 80 percentage points to about 175 per cent of output, the fund said.

Such large increases in other countries have been associated with sharp growth slowdowns and often financial crises, it said.

IMF staff estimated that a healthier pace of credit growth would have kept real GDP growth around 5.5 per cent from 2012 to 2016, rather than 7.25 per cent.

China is transitioning to more sustainable growth, as reforms are advancing widely. Policymakers have taken initial steps to facilitate private-sector deleveraging, while credit growth and corporate debt are both increasing more slowly, the IMF said.