The Washington-based International Monetary Fund (IMF) has called on China to address financial risks in a "clear and coordinated" manner and to "shift its fiscal policy from a contractionary strategy this year to a neutral stance for the time being.
A statement issued by the IMF on Friday (Nov. 19) noted that "China's economic recovery is progressing well, but unevenly, and momentum is slowing, and downside risks are building." The IMF officials issued the statement after completing the fourth article of this year's consultations with officials from China's Ministry of Commerce.
According to a Reuters report, the IMF blamed the slowdown in China on a rapid pullback in government policy support, a squeeze on consumption from the new crown epidemic and recent power supply shortages and slowing investment in the real estate sector.
"The rather pronounced contractionary fiscal policy implemented this year should temporarily shift to a neutral stance and focus on strengthening social protection and promoting green investment, rather than undertaking traditional infrastructure spending," the statement said.
The IMF also called for strengthening China's banking system through a "comprehensive banking restructuring approach" and efforts to open up markets and implement reforms to state-run enterprises.
The IMF statement said that ongoing efforts to address high corporate leverage should be accompanied by the establishment of "market-based insolvency and disposal structures.
The IMF warned that Beijing's increased regulation of the technology sector has increased policy uncertainty.
The real estate sector, one of the pillars of China's economic growth, has seen repeated risks and alerts of debt defaults this year, unsettling China's financial markets and deterring investment and financing in the sector, but also threatening to drag down China's overall economic growth.
Bloomberg reports that China's economic growth has fallen to a new low since 1990 in recent months as financing for the country's real estate sector has been severely restricted. But the IMF believes that the debt crisis that has led Chinese real estate giant Evergrande to the brink of default and bankruptcy is still having a limited impact and effect on China's overall economy for now.
Helge Berger, head of the IMF's China mission and assistant director of the Asia-Pacific Department, who led the consultations with Chinese commerce ministry officials, told Bloomberg that "policymakers have the tools [to keep this crisis in check], so there's no reason why this risk would be allowed to expand or that real estate demand and investment would be hit at the macro level. "
The IMF forecasts that China's economy will grow 8.0 percent this year and 5.6 percent next year, although it admits that the risks forcing a downward revision of these forecasts are also "accumulating.