IMF raises China growth forecasts but warns on industrial policy

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

Concluding their periodic assessment of the health of China’s economy, IMF staff said they were upgrading their forecast for gross domestic product growth in 2024 to 5 percent, from 4.6 percent. The multilateral lender also raised its 2025 forecast to 4.5 percent, from 4.1 percent.

The shift was driven by stronger growth in the first quarter and recent policy initiatives, the IMF said, as Beijing ramps up stimulus efforts to help an economy still struggling with the effects of a deep housing crisis.

But the IMF also reiterated calls to restructure China’s economy away from inefficient industrial policies that support “priority sectors” and toward those that favor domestic consumption. Beijing’s own growth target for 2024 is around 5 percent, the same figure as last year and the lowest figure in decades.

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

“Key priorities include rebalancing the economy towards consumption by strengthening the social safety net and liberalizing the services sector to enable it to boost growth potential and create jobs,” the IMF said.

“China’s use of industrial policies to support priority sectors may lead to misallocation of domestic resources and potentially impact trading partners. Reducing such policies and removing restrictions on trade and investment would increase domestic productivity and alleviate fragmentation pressures.”

The IMF staff’s “Article IV” consultation comes as Chinese President Xi Jinping is emphasizing what he calls “new productive forces” to drive growth, which will lead to heavy investments in advanced industries, including renewable energies, electric vehicles and semiconductors.

Worried that its auto industries could be wiped out by a wave of low-cost imports from China, the United States has raised tariffs on Chinese electric vehicles and the EU will soon conclude an anti-subsidy investigation into the industry.

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

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