China ‘at risk of low-growth trap’

CHINA will become stuck in a low-growth trap unless it addresses its demographic decline and a property crisis that continues to weigh on the economy, according to the International Monetary Fund (IMF).

Growth was likely to fall below 4pc before 2030 unless Beijing opened up the economy and reduced its reliance on state-owned enterprises, it said.

The IMF recently upgraded its 2023 growth projection to 5.2pc from 4.4pc after Beijing dropped its zero-covid policy.

It said safely easing remaining restrictions would help boost growth further in the short term, adding that bailouts of beleaguered construction projects would also be necessary to restore confidence in the property sector.

Despite the short-term upgrade, the IMF predicted annual growth would fall to just 3.1pc by 2031, from an average of more than 6pc in the decade before the pandemic, partly reflecting a demographic decline.

China’s population shrank for the first time in 60 years in 2022 as deaths outnumbered births.

The IMF said in its annual assessment of the world’s second largest economy: “With a shrinking labour force and diminishing returns to capital investment, growth in coming years will depend on boosting declining productivity growth. Without reforms, we currently estimate growth to fall below 4pc over the next five years.”

It said Beijing could limit the decline by taking steps to transition away from growth driven by investment toward one more dependent on consumer spending, as well as raising the retire- ment age to 65 for men and women to keep more people in work.

This would keep growth well above 4pc until the mid- 2030s, the IMF said, which would benefit the whole region.

Sonali Jain-chandra. IMF mission chief for China, said: “When China’s growth rate rises by 1 percentage point, growth in other countries increases by around 0.3 percentage points.”

The IMF also noted that youth unemployment was “particularly high” at 17.1pc at the end of last year, 4.6 percentage points higher than at the end of 2019, before the pandemic.

The IMF added: “Additional action is needed to end the real estate crisis.”

And the fund said that speeding up the Covid vaccine rollout was “urgently needed to address waning immunity in the general population”.