‘China has tools to contain risks’
AN International Monetary Fund (IMF) official has said that the Chinese government has tools to contain risks to the economy going forward, calling for a boost to productivity to support high-quality growth in the long run.
Noting that there is significant fiscal consolidation this year, Helge Berger, IMF China mission chief and assistant director in the Asia and Pacific Department, told Xinhua in a recent interview that the Chinese government will have to try to strike a balance between making sure sovereign debt doesn’t increase too fast and continuing to support the economy.
“It’s a delicate balance, and we would hope that fiscal policy next year will be more neutral,”Berger said. The IMF official said one thing the government can do to better that tradeoff is to rearrange the composition of fiscal spending.
“Going forward, it could be focused more on household support, which would help both in the short-term support consumption, and in the longer term support a more balanced growth model of China,”he said. In its latest World Economic Outlook (WEO), the IMF projected the Chinese economy to grow by 8 percent this year, a slight downward revision from the previous forecast.
The Chinese economy is on track to grow by 5,6 percent in 2022, according to the report.
The IMF official said the Chinese government has rolled out a series of regulatory initiatives in recent months, noting that some of these measures are done with “a very good reason”.
“There was certainly a question about competition policy in the tech sector. There of course is a reason to look at sectors like the property development sector, because corporate debt is very high and bringing this down over time is a very good policy target,” he said.
Berger, however, noted that it’s important to be“gradual”in the implementation of such policy changes.
“It is important to not surprise markets too much and avoid investor uncertainty around these measures,” he said.
Noting that high corporate debt is one of the downside risks to China’s growth, Berger said he believes the government has the tools to contain the risk that could arise as leverage is being reduced and prevent it from expanding into other sectors.
“It’s a difficult path to walk, but we think the government has the tools to walk this path successfully,” he said.
On electricity shortage, the IMF official said it resulted from a coal shortage, combined with China’s long standing regulations to improve the energy intensity of the economy and to slow the growth in energy consumption, adding that the government has ways to address both issues.
“We note that some of the announcements that we have seen put a greater emphasis on market-based incentives to improve energy intensity going forward. These are very helpful developments that should help China achieve its 2060 (carbon neutrality) goals going forward,” he said.
Looking ahead, Berger said he believes productivity is going to be the key driver for China’s longterm economic growth, encouraging the country to accelerate its transition toward high-quality growth.
Berger noted that China’s total factor productivity growth, a good measure of aggregate productivity, has fallen significantly in the last 10 years from the much higher pace of growth in the years before.
“With a shrinking workforce, productivity coming out of the domestic innovation, coming out of domestic market dynamism, is key,” said the IMF official.
He also called for efforts to help all firms, including private ones, enter and grow in markets, so as to provide productivity improvement for the economy. Xinhua.