The International Monetary Fund said in a statement released on Friday that China must address financial risks in a “clear and coordinated manner” and temporarily shift its fiscal policy away from this year’s contractionary approach.
“China’s recovery is well underway, but it is unbalanced, and momentum is slowing, even as downside risks mount,” the IMF said in a statement issued by staff involved in the recently concluded 2021 Article IV consultation with China.
The IMF attributed the slowdown to China’s rapid withdrawal of policy support, the impact of COVID-19 outbreaks on consumption, recent power outages, and a slowdown in real estate investment.
“Fiscal policy, which has been significantly contractionary this year,” it said, “should temporarily shift to a neutral stance and focus on strengthening social protection and promoting green investment over traditional infrastructure spending.”
In addition, the IMF called for a “comprehensive bank restructuring approach” to strengthen China’s banking system, as well as efforts to open markets and reform state-owned enterprises.
The IMF said that ongoing efforts to address high corporate leverage should be accompanied by the establishment of “market-based insolvency and resolution frameworks.”
The IMF also expressed concern that Beijing’s tighter regulation of technology sectors has increased policy uncertainty.
China’s property sector woes have jolted financial markets and cast doubt on the world’s second largest economy’s growth prospects. more info
The IMF expects China’s economy to grow 8.0 percent this year and 5.6 percent next year, but warned that downside risks to the forecasts were “accumulating.”