The IMF asks China to eliminate subsidies to its industry that “distort” supply – La Nación

by times news cr

The⁣ International ⁤Monetary Fund has been on a mission to China and⁢ experts are warning the‌ Asian giant to ⁢reduce “distorting” supply-side policies‌ that support manufacturing sectors.​ This ⁤warning comes at ⁤a time when United States and the European Union They accuse the country of subsidizing⁢ its industry, generating ‍overcapacity that will flood⁢ the world market with low-cost strategic ⁤products – ⁣especially those ‌related to the ecological transition.

“China’s use of industrial policies to support priority sectors may lead ⁤to misallocation of ​domestic resources and potentially‌ impact ⁢trading partners. Reducing such policies and ⁣removing restrictions on trade and investment would increase domestic ​productivity ⁣and alleviate fragmentation pressures. In ⁢this context, China must continue its ‍efforts to strengthen the multilateral trading system, specifically ⁢as‌ established by the WTO,” said⁣ IMF ​Deputy Managing Director Gita Gopinath.

Recently, United States Treasury Secretary Yanet⁤ Yellen,‍ during the G-7 summit in Italy, asked that her country and the European Union create ⁢“a united and clear front” against China’s industrial overcapacity. The measures taken​ by the Biden administration were to increase tariffs on Chinese electric ‍vehicles, among ⁢other products, to 100%, while Brussels⁤ is carrying out ⁢an investigation to see ⁤if China’s subsidized industry generates unfair competition‍ in the‌ European market . Once they know the ​result, they will act⁣ accordingly.

GDP upward revision

In its ‘Article ‍IV’ report, the IMF mission in the Asian country aligns with the Politburo’s growth forecasts and revises ‍China’s GDP for⁣ this year upwards to 5%, that⁣ is, 0.4% more than in its World‍ Economic Outlook report published ‍in mid-April. By ⁢2025 they expect it to slow down ⁤to 4.5%.

These new projections take into ‍account the good GDP ‌data that ​the country reflected in the first quarter and the measures recently announced by Xi Jinping’s⁢ administration. In the first three months of the year, the ‌Chinese economy expanded 1.6%, compared to the 1% it registered between October and December 2023. At ⁤the end⁢ of ⁢last year, the accumulated growth of the world’s second economy ​notably surprised the market by advancing 5.2%.

The IMF assures in its document that the “immediate” priorities that Chinese officials in charge of the Economy⁣ should have are ​to “carry​ out wide-ranging structural reforms” and highlight⁣ as “key” the⁢ need ⁤to rebalance the economy “towards consumption”, ​strengthening ⁤the social safety​ net and liberalizing the service sector.

Gopinath assured that⁤ China’s economic​ development⁢ “has⁤ been notable” in recent ⁣decades, but during this time of development “imbalances and⁢ growing vulnerabilities” have emerged, accompanied by ‌obstacles to growth.

In fact, they predict that the economy will continue to slow down until reaching⁢ 3.3% growth by⁣ 2029 due to‌ “the⁢ aging ⁢of the population and lower productivity growth.”

Two of the main obstacles facing the Chinese economy are the low domestic demand⁤ and the enormous crisis that ⁢is shaking its real estate sector. According to the IMF, inflation is expected to increase‌ “but will remain low, as ⁢production⁤ remains below potential.” ‍At the‍ same time, they see underlying inflation, which excludes energy and ‍food as they are materials ⁢with more‌ volatile prices, gradually growing until reaching an⁣ average of 1% in​ 2024. In⁤ the month of April, the general CPI closed at ‍0 .3%.

These⁤ inflation data allow us ‍to ‍get an idea of ​​how withdrawn domestic ​consumption is in China, which expected to rebound strongly after the opening ⁤of the country in 2022, which did not ‍happen.

Regarding⁤ the real estate sector,​ Beijing has made numerous reforms ⁣to encourage the purchase of new homes and incentives to complete unfinished ‌projects. The most recent measure was the purchase, by the public sector, of ​part of the ⁢60 million ⁤empty apartments in the Asian giant’s real estate⁢ stock to convert them into ​social and‍ affordable housing. The objective of‍ this is to remove empty housing from ⁣the‌ real estate stock.

Gopinath assured that these corrective ⁣measures are “necessary” to put the sector on ‌a sustainable⁣ path and reiterated that “they should ‍continue.” Therefore, the leader reiterated ​that ⁤a⁣ more comprehensive package of measures “would facilitate an efficient ‍and less​ costly transition,‍ while protecting against downside risks” to growth.

Financial stability

We must also not ​forget that, in addition⁢ to the real estate sector, China faces⁤ an‌ enormous financial problem of hidden debt of​ its local administrations. According⁣ to ‌recent⁢ estimates, this amounts to 70⁤ billion yuan (about ⁤9 billion euros).

To address this ⁣problem, the Government⁤ has implemented a series of measures in the second half of 2023 to help these local⁢ governments exchange or restructure their large unrecorded⁤ liabilities.

Experts assure that the⁢ measures are‌ poorly suited​ to the real problem it ‌represents. ​ the hidden debt of⁣ these administrations. They reiterate that, at most, they ⁢will “provide temporary relief” and reiterate that this is already “an imminent liquidity crisis problem for Chinese regional authorities.”

On ⁢the other hand,‌ the ‍IMF ⁣assures that the policies⁣ carried ⁤out‌ by ​the Politburo⁤ in this⁤ field “have adequately focused” on addressing the debt ‍of ⁢local governments‍ and smaller financial ‌institutions. But⁢ they ⁣recommend strengthening the bank resolution framework and “strictly applying” ⁣prudential standards that “will help improve”⁣ financial stability and help mitigate risks‌ to‌ the good ‌performance ⁣of the economy.

Source: El Economista Magazine

Editor: ⁤Welcome to‌ the Time.news interview segment, where we delve into pressing global economic issues. Today, we ⁣have the⁤ honor of speaking with⁤ Gita Gopinath, the ‌Deputy Managing ‍Director ​of the International Monetary Fund. Gita, thank you ⁤for joining us.

Gita Gopinath: Thank you for having me. It’s great⁤ to be here.

Editor: Let’s dive right‌ in. The ‍IMF recently completed a mission to China and provided some significant insights. One key theme is ‌the need for China to reduce its “distorting” supply-side policies that support ⁣the manufacturing sector. Can you elaborate on why this is critical at this ⁢juncture?

Gita​ Gopinath: Absolutely. China’s industrial policies have been instrumental in its economic rise,‍ but they can also lead ​to a misallocation ​of resources and create challenges for trading partners. Overcapacity⁤ in sectors supported ​by⁢ subsidies not only distorts global trade ⁤but ‌can also undermine⁣ domestic productivity in‍ the long run. ⁤By reducing these policies and opening⁢ up to trade⁢ and ⁢investment, China can enhance its ​own productivity and ​foster a more ​balanced economic environment.

Editor: This comes at a time when both the United States and the European Union are raising⁣ concerns over China’s subsidized industries. U.S.⁤ Treasury Secretary Janet Yellen has mentioned creating a united ‍front against​ China’s industrial overcapacity. How do you see this dynamic evolving between these major economies?

Gita Gopinath: ‌The calls for a united front signal a growing recognition‌ of the ‌challenges posed by unfair trade practices. The U.S. and EU have legitimate concerns about maintaining a level playing field. As countries impose tariffs ⁤– as the Biden administration‌ has done with electric vehicles – ⁣it’s vital that⁣ China engages‍ constructively, to⁢ address these concerns and ⁣move towards a more equitable trading system. The long-term stability of international trade is at​ stake.

Editor: Shifting our focus to economic growth, the IMF has revised⁤ China’s GDP growth ​forecast to 5% for this year. What factors contributed to this upward revision?

Gita Gopinath: The upward revision is largely driven by robust GDP data from the first ‍quarter and the proactive measures taken by the Chinese government. ‌The economy demonstrated​ a solid growth of 1.6% in those first three months, an improvement over previous quarters, driven in part by strong consumption and investment. However, our projections indicate‌ a gradual slowdown to about 4.5% by 2025, reflecting various structural challenges including⁤ demographic shifts and lower productivity growth.

Editor: You mentioned imbalances and vulnerabilities within the Chinese economy.⁣ Could you elaborate on the main ​obstacles that might hinder its growth?

Gita Gopinath: Certainly. Two of the most ‌pressing obstacles‍ are weak domestic demand and the ⁤ongoing crisis in the real estate sector. Despite expectations for a rebound in consumption post-reopening, the ‌recovery has been slow. Additionally, the real estate sector, plagued by substantial overhanging debt and empty apartments, needs ​careful management. Recent⁣ measures by ⁣Beijing​ to convert⁤ empty homes into affordable housing are‍ steps in the right direction, but more comprehensive ⁢reforms are essential to ‍ensure sustainable​ growth.

Editor: And what about inflation? ⁤You’ve pointed out that inflation is⁢ expected to rise, albeit remaining low. How does this reflect on the ⁢current state of consumption in China?

Gita Gopinath:⁢ The‌ current inflation signals a conundrum. While⁤ we expect ‍underlying inflation to gradually increase, overall consumer⁤ price inflation remains subdued, reflecting ‌a demand that is not fully robust. The lack of strong consumption suggests that households are still cautious post-pandemic, which could further complicate‍ the economic recovery if not addressed. Boosting consumer confidence is vital ‍for stimulating domestic demand.

Editor: Gita, thank you for your insights. ‍what overarching message would you like to convey to policymakers in China to help navigate these challenges?

Gita Gopinath: I would ‍emphasize‌ the importance of⁤ comprehensive structural reforms ⁢aimed at ​rebalancing the economy towards consumption. Strengthening the social safety net ⁤and⁣ liberalizing the service sector are crucial for sustainable long-term growth. China has made tremendous⁣ strides, but addressing the underlying vulnerabilities is essential for ensuring stability ⁣and ⁣prosperity ​in the years​ to come.

Editor: Thank you, Gita, for sharing your expertise with⁤ us today. Your insights are‌ invaluable as we collectively navigate these complex economic challenges.

Gita Gopinath: Thank⁢ you⁣ for having ⁣me. It’s been a pleasure discussing these‌ important issues.

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