Abstract
PEOPLE’S REPUBLIC OF CHINA
Title page
PEOPLE’S REPUBLIC OF CHINA
STAFF REPORT FOR THE 2022 ARTICLE IV CONSULTATION— SUPPLEMENTARY INFORMATION
January 9, 2023
Prepared By
Asia and Pacific Department
This supplement reports on developments and provides information that has become available since the staff report was issued to the Executive Board on December 21, 2022, notably about the widening spread of COVID and the economic policy announcements made at the Central Economic Work Conference (CEWC).
1. Shift to living with COVID sooner than expected. Since the staff report was issued to the Executive Board, there has been a rapid spread of COVID in China amid loosening of restrictions. The authorities have downgraded the COVID risk level and shifted their focus towards prevention of severe illness. A reimposition of COVID lockdowns that would severely restrict economic activity in major urban areas—while still possible—now seems unlikely. With growing natural immunity and the renewed elderly vaccination campaign underway, normalization of mobility across China is likely by 2023Q2, earlier than expected in the staff report baseline. While the earlier reopening implies a faster economic recovery and an upward revision to growth in 2023 relative to the staff report, the high degree of uncertainty, amid still-insufficient population-wide immunity in early 2023 and potential negative health consequences, presents large downside risks.
2. Economic policy direction for 2023. The Central Economic Work Conference (CEWC), the annual Party-led meeting that sets the economic policy agenda for the following year, concluded on December 16th with a pro-growth and pro-market agenda. A somewhat more supportive fiscal and monetary policy stance relative to the baseline in the staff report appears likely in 2023, and would be closer to staff’s policy recommendations, though specific policy announcements have not yet been made. The CEWC also called for an expansion of domestic demand via greater consumption, and support for the property sector, as well as development of a modern industrial system with technological innovation, including in renewables, and equal treatment of state-owned and private enterprises.
3. Implications for the outlook. Real GDP growth for 2023 was revised to 4.2 percent, up from 3.8 percent in the staff report, on account of earlier-than-expected economic reopening. The quarterly growth profile was also adjusted, given the ongoing COVID wave in 2023Q1. The wave should result in continued lower mobility, subdued private consumption and temporary supply chain disruptions, resulting in a downward revision to growth in Q1. In 2023Q2, following the likely peak of the COVID wave in Q1, mobility is expected to normalize and private consumption is projected to rebound substantially, resulting in an upward revision to Q2 growth. Private investment, exports and imports were also revised up. The earlier normalization of economic activity is expected to result in a somewhat smaller the current account surplus in 2023. The strong projected recovery after reopening is evident in Q4/Q4 growth, which is forecast at 7.1 percent. A further rebound is expected in 2024, with annual growth projected at 5.1 percent, a downward revision relative to the staff report as the recovery is brought forward in 2023.
Staff Appraisal
4. While the rapid removal of COVID containment measures could lead to a quicker recovery, uncertainty amid still-insufficient population-wide immunity in early 2023 presents large downside risks. Insufficient preparation for reopening could come with significant health consequences and set back the recovery of private consumption and investment and impact supply chains, with spillovers to the rest of the world. The reopening may also lead to stronger-than-expected inflationary pressures. To protect health and prevent severe illness, continued efforts are needed to re-accelerate the pace of vaccination (and maintain it at a sufficiently high level to ensure that protection is preserved), rapidly scale up health care capacity, and provide necessary supplies of anti-viral treatments.
5. In other areas, the thrust of the staff appraisal remains unchanged. In particular, the fiscal and monetary policy advice for 2023 remain unchanged, given that the estimated output gap in 2023 remains large.
Table 1 summarizes the revisions in the forecast.
China: Selected Economic Indicators
2021 GDP will be revised to match official revisions, once full official data are released.
Surveyed unemployment rate.
Includes government funds.
Adjustments are made to the authorities’ fiscal budgetary balances to reflect consolidated general budgetary government balance, including government-managed funds, state-administered SOE funds, adjustment to the stabilization fund, and social security fund.
Production side nominal GDP.
The augmented balance expands the perimeter of government to include government-guided funds and the activity of local government financing vehicles (LGFVs).
China: Selected Economic Indicators
| 2017 | 2018 | 2019 | 2020 | 2021 | 2022 | 2023 | 2024 | 2025 | 2026 | 2027 | |||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| Projections | |||||||||||||
| (Annual percentage change, unless otherwise indicated) | |||||||||||||
| NATIONAL ACCOUNTS | |||||||||||||
| Real GDP (base=2015) | 6.9 | 6.8 | 6.0 | 2.2 | 8.1 | 2.6 | 4.2 | 5.1 | 4.1 | 4.0 | 3.8 | ||
| Total domestic demand | 6.8 | 7.4 | 5.3 | 1.7 | 6.6 | 2.0 | 4.3 | 5.3 | 4.3 | 4.1 | 3.9 | ||
| Consumption | 7.2 | 7.9 | 6.3 | -0.3 | 9.8 | 1.6 | 4.7 | 5.3 | 4.3 | 4.2 | 3.9 | ||
| Fixed investment | 6.2 | 7.3 | 5.3 | 3.4 | 3.5 | 2.4 | 4.0 | 5.3 | 4.3 | 4.0 | 4.0 | ||
| Net exports (contribution) | 0.3 | -0.5 | 0.7 | 0.6 | 1.7 | 0.6 | 0.1 | 0.0 | 0.0 | 0.0 | 0.0 | ||
| Total capital formation (percent of GDP) | 43.2 | 44.0 | 43.1 | 42.9 | 42.8 | 43.5 | 43.4 | 43.2 | 42.9 | 42.6 | 42.3 | ||
| Gross national saving (percent of GDP) 1/ | 44.7 | 44.1 | 43.8 | 44.5 | 44.6 | 45.6 | 44.7 | 44.4 | 43.8 | 43.3 | 42.8 | ||
| Output gap estimate | -0.6 | -0.5 | -1.0 | -3.6 | -1.5 | -2.8 | -2.4 | -1.3 | -0.7 | -0.3 | 0.0 | ||
| LABOR MARKET | |||||||||||||
| Unemployment rate (annual average) 2/ | 5.1 | 4.9 | 5.2 | 5.6 | 5.1 | 5.5 | … | … | … | … | … | ||
| PRICES | |||||||||||||
| Consumer prices (average) | 1.6 | 2.1 | 2.9 | 2.4 | 0.9 | 1.9 | 1.5 | 1.7 | 2.0 | 2.0 | 2.0 | ||
| Consumer prices (end of period) | 1.8 | 1.9 | 4.5 | 0.2 | 1.5 | 1.9 | 1.9 | 1.7 | 2.0 | 2.0 | 2.0 | ||
| GDP Deflator | 3.9 | 3.5 | 2.1 | 1.3 | 2.7 | 3.0 | -0.2 | 1.1 | 1.4 | 1.3 | 1.3 | ||
| FINANCIAL | |||||||||||||
| 7-day repo rate (percent) | 5.4 | 3.1 | 3.1 | 2.6 | 2.5 | … | … | … | … | … | … | ||
| 10 year government bond rate (percent) | 3.7 | 3.0 | 3.9 | 3.3 | 2.8 | ... | ... | ... | ... | ... | ... | ||
| Real effective exchange rate (average) | -4.7 | -2.9 | 1.4 | -0.6 | 2.0 | … | … | … | … | … | … | ||
| Nominal effective exchange rate (average) | 9.7 | -5.4 | -2.5 | 1.5 | 5.4 | … | … | … | … | … | … | ||
| MACRO-FINANCIAL | |||||||||||||
| Total social financing | 14.1 | 10.3 | 10.7 | 13.3 | 10.3 | 10.3 | 8.9 | 7.6 | 6.6 | 6.3 | 6.1 | ||
| In percent of GDP | 248 | 248 | 254 | 278 | 276 | 288 | 302 | 305 | 308 | 311 | 314 | ||
| Total nonfinancial sector debt 3/ | 14.4 | 10.8 | 10.8 | 13.2 | 10.4 | 10.4 | 9.2 | 7.8 | 6.8 | 6.4 | 6.2 | ||
| In percent of GDP | 248 | 248 | 254 | 278 | 277 | 284 | 295 | 301 | 305 | 308 | 311 | ||
| Domestic credit to the private sector | 10.9 | 8.6 | 8.7 | 10.9 | 8.5 | 8.3 | 6.2 | 4.7 | 3.5 | 3.3 | 3.3 | ||
| In percent of GDP | 164 | 161 | 162 | 173 | 170 | 174 | 177 | 175 | 171 | 168 | 165 | ||
| Household debt (percent of GDP) | 48.9 | 52.3 | 55.8 | 61.6 | 62.5 | 61.1 | 60.7 | 60.6 | 60.4 | 60.8 | 61.6 | ||
| Non-financial corporate domestic debt (percent of GDP) | 115 | 109 | 106 | 112 | 107 | 113 | 117 | 114 | 111 | 107 | 104 | ||
| GENERAL BUDGETARY GOVERNMENT (Percent of GDP) | |||||||||||||
| Net lending/borrowing 4/ | -3.4 | -4.3 | -6.1 | -9.7 | -6.1 | -9.5 | -7.7 | -7.6 | -7.4 | -7.3 | -7.2 | ||
| Revenue | 29.2 | 29.0 | 28.1 | 25.7 | 26.8 | 25.1 | 26.0 | 26.1 | 26.2 | 26.4 | 26.5 | ||
| Additional financing from land sales | 2.5 | 2.8 | 2.9 | 2.5 | 2.3 | 1.4 | 1.4 | 1.3 | 1.2 | 1.2 | 1.1 | ||
| Expenditure | 35.1 | 36.1 | 37.1 | 37.9 | 35.2 | 36.0 | 35.1 | 35.0 | 34.9 | 34.8 | 34.8 | ||
| Debt | 36.2 | 36.5 | 38.5 | 45.4 | 47.2 | 51.0 | 55.1 | 57.9 | 60.9 | 63.8 | 66.7 | ||
| Structural balance | -3.2 | -4.1 | -5.8 | -8.8 | -5.7 | -8.7 | -7.0 | -7.2 | -7.3 | -7.2 | -7.2 | ||
| BALANCE OF PAYMENTS (Percent of GDP) | |||||||||||||
| Current account balance | 1.5 | 0.2 | 0.7 | 1.7 | 1.8 | 2.1 | 1.3 | 1.2 | 1.0 | 0.7 | 0.5 | ||
| Trade balance | 3.9 | 2.7 | 2.7 | 3.4 | 3.2 | 3.8 | 3.6 | 3.6 | 3.4 | 3.2 | 3.0 | ||
| Services balance | -2.1 | -2.1 | -1.8 | -1.0 | -0.6 | -0.8 | -1.7 | -1.8 | -1.8 | -1.8 | -1.7 | ||
| Net international investment position | 16.8 | 15.2 | 16.0 | 15.4 | 11.2 | 12.1 | 12.9 | 13.1 | 13.1 | 12.9 | 12.5 | ||
| Gross official reserves (billions of U.S. dollars) | 3,236 | 3,168 | 3,223 | 3,357 | 3,427 | 3,277 | 3,339 | 3,410 | 3,472 | 3,511 | 3,526 | ||
| MEMORANDUM ITEMS | |||||||||||||
| Nominal GDP (billions of RMB) 5/ | 82,898 | 91,577 | 99,071 | 102,563 | 113,818 | 120,215 | 125,018 | 132,933 | 140,340 | 147,811 | 155,411 | ||
| Augmented debt (percent of GDP) 6/ | 77.9 | 80.8 | 86.3 | 98.8 | 101.4 | 109.6 | 120.5 | 127.4 | 134.4 | 140.9 | 146.9 | ||
| Augmented net lending/borrowing (percent of GDP) 6/ | -13.0 | -11.4 | -12.4 | -18.4 | -13.8 | -16.8 | -16.7 | -15.6 | -15.1 | -14.6 | -14.1 | ||
2021 GDP will be revised to match official revisions, once full official data are released.
Surveyed unemployment rate.
Includes government funds.
Adjustments are made to the authorities’ fiscal budgetary balances to reflect consolidated general budgetary government balance, including government-managed funds, state-administered SOE funds, adjustment to the stabilization fund, and social security fund.
Production side nominal GDP.
The augmented balance expands the perimeter of government to include government-guided funds and the activity of local government financing vehicles (LGFVs).
China: Selected Economic Indicators
| 2017 | 2018 | 2019 | 2020 | 2021 | 2022 | 2023 | 2024 | 2025 | 2026 | 2027 | |||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| Projections | |||||||||||||
| (Annual percentage change, unless otherwise indicated) | |||||||||||||
| NATIONAL ACCOUNTS | |||||||||||||
| Real GDP (base=2015) | 6.9 | 6.8 | 6.0 | 2.2 | 8.1 | 2.6 | 4.2 | 5.1 | 4.1 | 4.0 | 3.8 | ||
| Total domestic demand | 6.8 | 7.4 | 5.3 | 1.7 | 6.6 | 2.0 | 4.3 | 5.3 | 4.3 | 4.1 | 3.9 | ||
| Consumption | 7.2 | 7.9 | 6.3 | -0.3 | 9.8 | 1.6 | 4.7 | 5.3 | 4.3 | 4.2 | 3.9 | ||
| Fixed investment | 6.2 | 7.3 | 5.3 | 3.4 | 3.5 | 2.4 | 4.0 | 5.3 | 4.3 | 4.0 | 4.0 | ||
| Net exports (contribution) | 0.3 | -0.5 | 0.7 | 0.6 | 1.7 | 0.6 | 0.1 | 0.0 | 0.0 | 0.0 | 0.0 | ||
| Total capital formation (percent of GDP) | 43.2 | 44.0 | 43.1 | 42.9 | 42.8 | 43.5 | 43.4 | 43.2 | 42.9 | 42.6 | 42.3 | ||
| Gross national saving (percent of GDP) 1/ | 44.7 | 44.1 | 43.8 | 44.5 | 44.6 | 45.6 | 44.7 | 44.4 | 43.8 | 43.3 | 42.8 | ||
| Output gap estimate | -0.6 | -0.5 | -1.0 | -3.6 | -1.5 | -2.8 | -2.4 | -1.3 | -0.7 | -0.3 | 0.0 | ||
| LABOR MARKET | |||||||||||||
| Unemployment rate (annual average) 2/ | 5.1 | 4.9 | 5.2 | 5.6 | 5.1 | 5.5 | … | … | … | … | … | ||
| PRICES | |||||||||||||
| Consumer prices (average) | 1.6 | 2.1 | 2.9 | 2.4 | 0.9 | 1.9 | 1.5 | 1.7 | 2.0 | 2.0 | 2.0 | ||
| Consumer prices (end of period) | 1.8 | 1.9 | 4.5 | 0.2 | 1.5 | 1.9 | 1.9 | 1.7 | 2.0 | 2.0 | 2.0 | ||
| GDP Deflator | 3.9 | 3.5 | 2.1 | 1.3 | 2.7 | 3.0 | -0.2 | 1.1 | 1.4 | 1.3 | 1.3 | ||
| FINANCIAL | |||||||||||||
| 7-day repo rate (percent) | 5.4 | 3.1 | 3.1 | 2.6 | 2.5 | … | … | … | … | … | … | ||
| 10 year government bond rate (percent) | 3.7 | 3.0 | 3.9 | 3.3 | 2.8 | ... | ... | ... | ... | ... | ... | ||
| Real effective exchange rate (average) | -4.7 | -2.9 | 1.4 | -0.6 | 2.0 | … | … | … | … | … | … | ||
| Nominal effective exchange rate (average) | 9.7 | -5.4 | -2.5 | 1.5 | 5.4 | … | … | … | … | … | … | ||
| MACRO-FINANCIAL | |||||||||||||
| Total social financing | 14.1 | 10.3 | 10.7 | 13.3 | 10.3 | 10.3 | 8.9 | 7.6 | 6.6 | 6.3 | 6.1 | ||
| In percent of GDP | 248 | 248 | 254 | 278 | 276 | 288 | 302 | 305 | 308 | 311 | 314 | ||
| Total nonfinancial sector debt 3/ | 14.4 | 10.8 | 10.8 | 13.2 | 10.4 | 10.4 | 9.2 | 7.8 | 6.8 | 6.4 | 6.2 | ||
| In percent of GDP | 248 | 248 | 254 | 278 | 277 | 284 | 295 | 301 | 305 | 308 | 311 | ||
| Domestic credit to the private sector | 10.9 | 8.6 | 8.7 | 10.9 | 8.5 | 8.3 | 6.2 | 4.7 | 3.5 | 3.3 | 3.3 | ||
| In percent of GDP | 164 | 161 | 162 | 173 | 170 | 174 | 177 | 175 | 171 | 168 | 165 | ||
| Household debt (percent of GDP) | 48.9 | 52.3 | 55.8 | 61.6 | 62.5 | 61.1 | 60.7 | 60.6 | 60.4 | 60.8 | 61.6 | ||
| Non-financial corporate domestic debt (percent of GDP) | 115 | 109 | 106 | 112 | 107 | 113 | 117 | 114 | 111 | 107 | 104 | ||
| GENERAL BUDGETARY GOVERNMENT (Percent of GDP) | |||||||||||||
| Net lending/borrowing 4/ | -3.4 | -4.3 | -6.1 | -9.7 | -6.1 | -9.5 | -7.7 | -7.6 | -7.4 | -7.3 | -7.2 | ||
| Revenue | 29.2 | 29.0 | 28.1 | 25.7 | 26.8 | 25.1 | 26.0 | 26.1 | 26.2 | 26.4 | 26.5 | ||
| Additional financing from land sales | 2.5 | 2.8 | 2.9 | 2.5 | 2.3 | 1.4 | 1.4 | 1.3 | 1.2 | 1.2 | 1.1 | ||
| Expenditure | 35.1 | 36.1 | 37.1 | 37.9 | 35.2 | 36.0 | 35.1 | 35.0 | 34.9 | 34.8 | 34.8 | ||
| Debt | 36.2 | 36.5 | 38.5 | 45.4 | 47.2 | 51.0 | 55.1 | 57.9 | 60.9 | 63.8 | 66.7 | ||
| Structural balance | -3.2 | -4.1 | -5.8 | -8.8 | -5.7 | -8.7 | -7.0 | -7.2 | -7.3 | -7.2 | -7.2 | ||
| BALANCE OF PAYMENTS (Percent of GDP) | |||||||||||||
| Current account balance | 1.5 | 0.2 | 0.7 | 1.7 | 1.8 | 2.1 | 1.3 | 1.2 | 1.0 | 0.7 | 0.5 | ||
| Trade balance | 3.9 | 2.7 | 2.7 | 3.4 | 3.2 | 3.8 | 3.6 | 3.6 | 3.4 | 3.2 | 3.0 | ||
| Services balance | -2.1 | -2.1 | -1.8 | -1.0 | -0.6 | -0.8 | -1.7 | -1.8 | -1.8 | -1.8 | -1.7 | ||
| Net international investment position | 16.8 | 15.2 | 16.0 | 15.4 | 11.2 | 12.1 | 12.9 | 13.1 | 13.1 | 12.9 | 12.5 | ||
| Gross official reserves (billions of U.S. dollars) | 3,236 | 3,168 | 3,223 | 3,357 | 3,427 | 3,277 | 3,339 | 3,410 | 3,472 | 3,511 | 3,526 | ||
| MEMORANDUM ITEMS | |||||||||||||
| Nominal GDP (billions of RMB) 5/ | 82,898 | 91,577 | 99,071 | 102,563 | 113,818 | 120,215 | 125,018 | 132,933 | 140,340 | 147,811 | 155,411 | ||
| Augmented debt (percent of GDP) 6/ | 77.9 | 80.8 | 86.3 | 98.8 | 101.4 | 109.6 | 120.5 | 127.4 | 134.4 | 140.9 | 146.9 | ||
| Augmented net lending/borrowing (percent of GDP) 6/ | -13.0 | -11.4 | -12.4 | -18.4 | -13.8 | -16.8 | -16.7 | -15.6 | -15.1 | -14.6 | -14.1 | ||
2021 GDP will be revised to match official revisions, once full official data are released.
Surveyed unemployment rate.
Includes government funds.
Adjustments are made to the authorities’ fiscal budgetary balances to reflect consolidated general budgetary government balance, including government-managed funds, state-administered SOE funds, adjustment to the stabilization fund, and social security fund.
Production side nominal GDP.
The augmented balance expands the perimeter of government to include government-guided funds and the activity of local government financing vehicles (LGFVs).