IMF raises China growth forecast but warns on industrial policy

The IMF has upgraded its forecast for China’s economic growth this year but warned that Beijing needed to “scale back” industrial policies that could affect trading partners and increase efforts to lift domestic demand.

Concluding their regular assessment of the health of China’s economy, IMF staff said they were raising their forecast for the country’s gross domestic product growth in 2024 to 5 per cent from 4.6 per cent. The multilateral lender also increased its forecast for 2025 to 4.5 per cent from 4.1 per cent.

The change was driven by stronger first-quarter growth and recent policy initiatives, the IMF said, as Beijing has eased monetary policy and stepped up programmes to mitigate a deep property slump.

But the IMF also reiterated calls to restructure the China’s economy away from inefficient industrial policies supporting “priority sectors” and towards those favouring domestic consumption.

Beijing’s own growth target for 2024 is about 5 per cent, the same figure as last year and the lowest in decades.

The comments came amid growing concern among China’s trading partners that its industrial policies are creating overcapacity in sectors such as vehicles and renewable energy.

“China’s use of industrial policies to support priority sectors can lead to a misallocation of domestic resources and potentially affect trading partners,” the IMF said in a statement. “Scaling back such policies and removing trade and investment restrictions would raise domestic productivity and ease fragmentation pressures.”

IMF first deputy managing director Gita Gopinath said at a briefing that there has been a rapid increase in global trade restrictions and industrial policies in 2022 and 2023, particularly in the US, the EU and China.

“We also see evidence of very quick retaliation in terms of when any of these three regions . . . puts a subsidy in place, we’ve seen that within the next 12 months, there’s a 75 per cent probability that the other country also retaliates with another subsidy,” Gopinath said, calling for differences to be resolved through the World Trade Organization.

The IMF consultation comes as China’s President Xi Jinping has emphasised what he calls “new productive forces” to drive growth, leading to heavy investment in advanced industries such as renewable energy, electric vehicles and semiconductors.

The US has responded by raising tariffs on Chinese EVs, while the EU will soon conclude an anti-subsidy investigation over concerns that their automotive industries could be wiped out by a wave of low-cost Chinese imports.

China has rejected claims of overcapacity or subsidies in its renewable energy industries and has accused the US of using trade to try to contain its development, and the EU of protectionism.

The IMF said in its statement that “key priorities” for China should “include rebalancing the economy towards consumption by strengthening the social safety net and liberalising the services sector to enable to it to boost growth potential and create jobs”.

Asked about the third plenum, a meeting of China’s leadership expected in July and focusing on economic policy, Steven Alan Barnett, IMF senior resident representative in China, said he hoped Beijing would target productivity gains.

This would include policies to give the market a decisive role in the economy, treat all companies equally whether they are private, foreign or state-owned, and create a good business environment.

Under Xi, business and foreign investor confidence has fallen as Beijing has championed state-owned enterprises and abruptly cracked down on successful sectors such as internet platforms. Foreign businesses also regularly complain that they are not given equal access to markets in China.

“Ultimately, how fast an economy grows in the long run is based on growth and productivity,” Barnett said. “Our own research shows that over a 15-year period with good reforms, China’s GDP level could be 18 per cent higher. So there’s a lot at stake for success here.”