IMF head says China at ‘fork in the road’ on reforms to boost demand

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China’s economy is at a “fork in the road” where it must choose between past policies or “pro-market reforms” to unlock growth, IMF managing director Kristalina Georgieva said on Sunday, as calls grow for Beijing to do more to boost domestic demand.

Speaking at China’s flagship international business conference in Beijing, Georgieva said the global economy showed remarkable resilience to shocks but was headed for growth that was “weak by historical standards” in the medium term as low productivity growth and high debt levels curbed progress. 

“China faces a fork in the road — rely on the policies that have worked in the past, or reinvent itself for a new era of high-quality growth,” Georgieva told the China Development Forum in Beijing.

Opened by China’s premier, Li Qiang, the country’s number two official, this year’s forum is being attended by global chief executives including Apple’s Tim Cook, ExxonMobil’s Darren Woods and HSBC’s Noel Quinn.

Li promised that Beijing would prepare regulations to smooth market access for foreign enterprises and efforts to boost domestic consumption.

“We will focus on expanding domestic demand,” Li said, adding that China would “accelerate the development of a modern industrial system”.

The conference comes as China’s trading partners confront oversupply risks in major industries including electric vehicles and steel, which could spur manufacturers to dump excess goods on global markets. 

Beijing has set a growth target of 5 per cent for this year, the same as in 2023 but low compared with previous years, and analysts expect the economy to slow further in the medium term on the back of a property downturn and demographic decline.

China has responded by promising to invest more in manufacturing and infrastructure but economists are calling for it to do more to stimulate domestic demand.

Georgieva’s use of the term “high-quality growth” borrows from the rhetoric of China’s President Xi Jinping, who has urged Chinese industry to move up the value chain into more sophisticated technology and value-added industries.

She said with a “comprehensive package of pro-market reforms” China could add 20 per cent or $3.5tn to its economy over the next 15 years. 

These would include reducing the stock of unfinished housing left over from its real estate crisis and “giving more space for market based corrections in the property sector”. 

Strengthening China’s pension system in a “fiscally responsible way” could help boost the spending power of individuals and families, she said, while reforms to ensure a level playing field between private and state-owned enterprises could improve the allocation of capital.

“Investments in human capital — in education, life-long training and reskilling — and quality healthcare will deliver higher labour productivity and higher incomes,” she said. 

On the global economy, she said “strong macroeconomic fundamentals” in most of the advanced and emerging countries had helped weather the shocks of the past years. 

But she said 2024 would be challenging for fiscal authorities in most countries. “They need to embrace consolidation to reduce debt and rebuild buffers, and at the same time finance the digital and green transformations of their economies,” she said.