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IMF upbeat on China's economic forecast but warns reform still needed

Cranes at a construction site in the Central Business District are reflected on a window panels of an office building in Beijing, Sunday, May 26, 2024.
Cranes at a construction site in the Central Business District are reflected on a window panels of an office building in Beijing, Sunday, May 26, 2024. Copyright Andy Wong/Copyright 2024 The AP. All rights reserved
Copyright Andy Wong/Copyright 2024 The AP. All rights reserved
By AP with Euronews
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The projections come as Beijing powers ahead with recovery efforts to lift itself from a prolonged property crisis.

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A report from the International Monetary Fund (IMF), released late on Tuesday, said the world’s second-largest economy will likely expand at a 5% annual rate this year.

That’s 0.4 of a percentage point above the IMF’s earlier estimate, based on China’s growth in the first quarter and recent moves to support the property sector.

The group nonetheless warned that in order to attain sustainable growth, China must build stronger social safety nets and increase workers’ incomes to boost spending.

The IMF also said that 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.

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.

Looking further ahead, the IMF forecasts growth in 2025 to be slightly slower at 4.5%, although this is also up 0.4% from an earlier forecast.

The group praised the Chinese government’s focus on what it calls “high quality” growth, including increased investment in clean energy and advanced technology, along with improved regulation of financial industries.

It nonetheless 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 in the country.

The report echoes the 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.

Concerning projections for 2029, the IMF was more pessimistic, suggesting that annual economic growth in China will fall to 3.3%

This is 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 car manufacture and computer chip development may equally waste resources and affect China’s trading partners, it said, alluding to a key point of contention between Washington and Beijing.

US 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.

China rejects that stance, while protesting that the US and other wealthy nations have invoked false national security concerns to impose unfair restrictions on exports of technology to China.

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