IMF chief urges China to rebalance economy toward consumption

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The head of the International Monetary Fund struck a positive note on China’s outlook, describing it as one of the “green shoots” in the world economy and urging authorities to rebalance the economy toward consumption.

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IMF Managing Director Kristalina Georgieva said the “strong rebound in the China economy is important not only for itself, but for the world.”

“The robust rebound means China is set to account for around one third of global growth in 2023 —giving a welcome lift to the world economy,” Georgieva said in prepared remarks to the China Development Forum in Beijing on Sunday.

IMF’s January forecast for China puts GDP growth at 5.2 percent this year, an increase of more than 2 percentage points from the 2022 rate, and driven by the anticipated rebound of private consumption as the economy reopened and activity normalized, she said.

Globally, the economic picture remains less rosy.

“Uncertainties are exceptionally high, including because of risks of geo-economic fragmentation which could mean a world split into rival economic blocs — a ‘dangerous division’ that would leave everyone poorer and less secure,” she said, adding the outlook for the global economy over the medium-term is likely to “remain weak.”

Georgieva also said it’s clear risks to financial stability have increased and there’s an added need for vigilance.

“At a time of higher debt levels, the rapid transition from a prolonged period of low interest rates to much higher rates — necessary to fight inflation — inevitably generates stresses and vulnerabilities, as evidenced by recent developments in the banking sector in some advanced economies,” the managing director said.

Georgieva urged China to take measures to raise productivity and rebalance its economy away from investment and toward more consumption-driven growth that she said is more durable, less reliant on debt, and will help address climate challenges.

To get there, China’s social protection system will need to play a central role through higher health and unemployment insurance benefits to cushion households against shocks, she said.

At the same time, market-oriented reforms to level the playing field between the private sector and state-owned enterprises, together with investments in education, would significantly lift the economy’s productive capacity, she added.

“The combined impact of these policies could be significant,” Georgieva said.

A rebalancing of China’s economy could also lead to a 15 percent reduction in carbon dioxide emissions over the next three decades.

“Again, this translates into benefits for the whole world: a fall in global emissions of 4.5 percent over the same period,” she said.

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