Front Matter Page
IMF Country Report No. 19/266
PEOPLE’S REPUBLIC OF CHINA
2019 ARTICLE IV CONSULTATION—PRESS RELEASE; STAFF REPORT; STAFF STATEMENT AND STATEMENT BY THE EXECUTIVE DIRECTOR FOR CHINA
August 2019
Under Article IV of the IMF’s Articles of Agreement, the IMF holds bilateral discussions with members, usually every year. In the context of the 2019 Article IV consultation with China, the following documents have been released and are included in this package:
A Press Release summarizing the views of the Executive Board as expressed during its July 31, 2019 consideration of the staff report that concluded the Article IV consultation with China.
The Staff Report prepared by a staff team of the IMF for the Executive Board’s consideration on July 31, 2019, following discussions that ended on June 5, 2019, with the officials of China on economic developments and policies. Based on information available at the time of these discussions, the staff report was completed on July 12, 2019.
An Informational Annex prepared by the IMF staff.
A Staff Statement updating information on recent developments.
A Statement by the Executive Director for China.
Copies of this report are available to the public from
International Monetary Fund • Publication Services
PO Box 92780 • Washington, D.C. 20090
Telephone: (202) 623–7430 • Fax: (202) 623–7201
E-mail: publications@imf.org Web: http://www.imf.org
Price: $18.00 per printed copy
International Monetary Fund
Washington, D.C.
© 2019 International Monetary Fund
Front Matter Page
PEOPLE’S REPUBLIC OF CHINA
STAFF REPORT FOR THE 2019 ARTICLE IV CONSULTATION
July 12, 2019
Key Issues
Context. After the slowdown in 2018, reflecting financial regulatory strengthening and softening external demand, growth stabilized in early 2019. Financial deleveraging and reduced interconnectedness between banks and non-banks have helped contain the build-up of financial risks, but vulnerabilities remain elevated and progress on rebalancing is mixed. While a moderate slowdown is expected in 2019, uncertainty around trade tensions remains high and risks are tilted to the downside.
Policies. Successfully shifting from high-speed to high-quality growth in a highly uncertain environment requires stabilizing the economy amid rising trade tensions while continuing with deleveraging and strengthening rebalancing. The key elements are to:
Adjust macro policies and allow for a more flexible exchange rate. The announced policy measures are sufficient to stabilize growth in 2019 provided there are no further increases in tariffs. If trade tensions escalate further, additional stimulus, mainly fiscal, would be warranted.
Improve external policies and frameworks by working constructively with trading partners to better address shortcomings and enable a trading system that can more readily adapt to economic changes in the international environment. The global economy would benefit from a more open, stable, and transparent, rules-based international trade system. China can also benefit from further opening up and other structural reforms that enhance competition.
Continue strengthening the financial sector by fully implementing the announced regulatory reforms, strengthening bank capital, especially for smaller banks, and enhancing macroprudential tools to address vulnerabilities from rising household debt. Developing a clear resolution regime would facilitate the exit of weak banks. Removing the implicit guarantees and hardening the budget constraints for state-owned enterprises (SOEs) would improve credit allocation and limit SOEs’ advantage in accessing credit.
Boost competition by opening up non-strategic sectors, particularly in services, to private and foreign enterprise, and unifying product markets across localities.
Modernize policy frameworks by eventually moving to a single policy rate in the monetary policy framework, reducing the misalignment of center-local fiscal responsibilities, and further improving transparency and statistics.
Approved By
Kenneth Kang and Petya Koeva Brooks
Discussions took place in Guizhou and Beijing May 23–June 5, 2019. The team comprised K. Kang (head), J. Daniel, S. Das, F. Han, S. Jahan, E. Jurzyk, J. Kang (all APD), G. Li (FAD), M. Catalan (MCM), P. Deb (SPR), and A. Schipke, S. Chen and L. Zhang (Resident Representatives). FDMD D. Lipton held high-level meetings on June 3–4. Z. Jin, P. Sun and Y. Liu (all OED) joined the official meetings. T. Yan (COM) coordinated media activities, and J. Brondolo (FAD) provided governance assistance. G. Alvim, K. Chow, L. Tolentino, J. Zhang, Q. Shan, and J. Li supported the mission.
Contents
CONTEXT: NAVIGATING HEADWINDS AND UNCERTAINTY
RECENT DEVELOPMENTS: WEAKER GROWTH AMID REGULATORY STRENGTHENING AND EXTERNAL HEADWINDS
OUTLOOK AND RISKS: SLOWER GROWTH, RISING DEBT, HIGHER UNCERTAINTY
POLICIES TO STRENGTHEN REBALANCING AMID HIGH UNCERTAINTY AND HEADWINDS: FIVE KEY QUESTIONS
A. How Should Macro Policies Respond to Rising Trade Tensions and Uncertainty?
B. How Should China’s External Policies and Frameworks Evolve to Modernize the International System?
C. How to Continue Deleveraging and De-risking Amid Tighter Domestic Financial Conditions and Slowing Growth?
D. How to Contain External Imbalances and Further Boost Consumption?
E. How to Boost Productivity and Longer-term Income Convergence?
STAFF APPRAISAL
BOXES
1. Productivity Convergence and Potential Growth
2. Spillovers from a Potential U.S.-China Managed Trade Agreement
3. Reform Complementarities and Sequencing
4. Improving Governance in Administering Land Fees
FIGURES
1. Recent Developments: Weaker Growth Momentum
2. Rebalancing: Continued but Uneven Progress
3. External: Shrinking Current Account Surplus
4. Fiscal: Continued Loosening
5. Monetary: Inflation Contained Amid Policy Easing
6. Credit Growth Slows but is Still Rising as a Share of GDP
7. Banking Asset Growth has Bottomed Out, but Capital Constraints Could Hamper Recovery
8. Financial Market Funding Conditions Tight Despite Policy Easing
TABLES
1. Selected Economic Indicators
2. Balance of Payments
3. External Vulnerability Indicators
4. Monetary and Credit Developments
5. General Government Fiscal Data
6. Nonfinancial Sector Debt
7. Rebalancing Scorecard
8. SOE Performance
APPENDICES
I. Debt Sustainability Analysis
II. Risk Assessment Matrix
III. AML/CFT Assessment
IV. External Sector Report
V. Implementation of Main Recommendations of the 2018 Article IV Consultation
VI. Implementation of Main Recommendations from China’s 2017 FSAP
Front Matter Page
PEOPLE’S REPUBLIC OF CHINA
STAFF REPORT FOR THE 2019 ARTICLE IV CONSULTATION—INFORMATIONAL ANNEX
July 12, 2019
Prepared By
Asia and Pacific Department (In consultation with other departments)
Contents
FUND RELATIONS
RELATIONS WITH OTHER INTERNATIONAL FINANCIAL INSTITUTIONS
STATISTICAL ISSUES
CAPACITY DEVELOPMENT AND TECHNICAL ASSISTANCE
Front Matter Page
Press Release No. 19/314
FOR IMMEDIATE RELEASE
August 9, 2019
International Monetary Fund
700 19th Street, NW
Washington, D. C. 20431 USA
