IMF upgrades its forecast for China's economy, but says reforms are needed to support growth

The International Monetary Fund has upgraded its forecast for China’s economy, while warning that consumer-friendly reforms are needed to sustain strong, high-quality growth. The IMF's report, issued late Tuesday, said the world's second-largest economy will likely expand at a 5% annual rate this year, based on its growth in the first quarter and recent moves to support the property sector. But it warned that attaining sustained growth requires building stronger social safety nets and increasing workers' incomes to enable Chinese consumers to spend more. 

The IMF also said Beijing should scale back subsidies and other “distortive” policies that support manufacturing at the expense of other industries such as services.

The ruling Communist Party has set its annual growth target at “around 5%,” and the economy grew at a faster-than-expected 5.3% in the first quarter of the year, boosting the global economy.

The IMF said its upgraded forecast also reflects recent moves to boost growth, including fresh help for the property industry such as lower interest rates and smaller down-payment requirements on home loans.

But it said risks remained, with growth in 2025 forecast to be 4.5%. The IMF praised the Chinese government's focus on what it calls “high quality” growth, including increased investment in clean energy and advanced technology and improved regulation of financial industries. But it added that “a more comprehensive and balanced policy approach would help China navigate the headwinds facing the economy." Job losses, especially during the pandemic, and falling housing prices have hit the finances of many Chinese. 

The report echoes opinions of many economists who say more must be done to provide a social safety net and increase incomes for workers so that Chinese families can afford to save less and spend more.

The IMF report's longer-term assessment was less optimistic. It said it expected China's annual economic growth to fall to 3.3% by 2029 due to the rapid aging of its population and slower growth in productivity as well as the protracted difficulties in the housing sector.

Use of industrial policies to support various industries such as automaking and computer chip development may waste resources and affect China's trading partners, it said, alluding to a key point of contention between Washington and Beijing.U.S. officials contend that China is providing unfair support to its own industries and creating excessive manufacturing capacity that can only be absorbed by exporting whatever cannot be used or sold at home.