International Monetary Fund (IMF) has stated in a latest update that despite being buffeted by multiple shocks, the Chinese economy has shown remarkable resilience and continues to be a significant driver of global growth. China’s growth model, which has historically delivered impressive gains, now faces challenges. The protracted adjustment in the property sector and spillovers to local government (LG) finances, amid a debt overhang, have led to continued weakness in domestic demand and deflationary pressures.

IMF noted that the deficiency in domestic demand has been mitigated by strong export growth, in part supported by real exchange rate depreciation reflecting weaker inflation in China relative to trading partners. Higher net exports have also resulted in the emergence of external imbalances, with adverse spillovers to trading partners.

China’s large economic size and heightened global trade tensions make reliance on exports less viable for sustaining robust growth going forward. Furthermore, state-led and debt-financed investment and unwarranted industrial policy support have resulted in weakening productivity, build-up of financial vulnerabilities, and excess supply in some tradable sectors. The policy measures implemented thus far remain modest relative to the scale of the challenges.

Powered by Commodity Insights