China is facing a “parting of the ways,” says IMF head Georgieva at the CDF forum

According to the managing director of the International Monetary Fund, Kristalina Georgieva, China currently has two options: return to the old economic policy or select reforms to stimulate growth.

“China will face a fork in the road – rely on policies that have worked in the past or update its policies to usher in a new era of high-quality growth,” Georgieva said Sunday at the Congress China Development Forum in Beijing.

“With a comprehensive package of market-oriented reforms, China could develop much faster than in the status quo scenario,” she said. prepared remarks by the IMF.

That could unleash growth that “would mean a 20% increase in the real economy over the next 15 years – in today’s terms, that means adding $3.5 trillion to the Chinese economy,” she added.

Although the country has rebounded from the Covid pandemic – with growth exceeding 5% in 2023 – based on the Bulgarian economist, it is fighting aspects reminiscent of low productivity growth and an aging population.

But she added: “In the medium term, China will continue to be a key contributor to global economic growth.”

At this yr’s two-day China Development Forum, which began on Sunday, Chinese officials are waiting over 100 foreign participants, including CEOs of the largest foreign firms, in addition to leaders of the IMF and the World Bank.

During the forum’s keynote speech, Chinese Premier Li Qiang announced efforts to advertise “high-quality development”, “intensify macroeconomic policy adjustments” and boost domestic demand, in keeping with state media reports. He also promised a “higher level of openness” in addressing challenges.

Separately, officials reportedly made the commitment further protection to firms financed from abroad, e.g Foreign investment into China will dry up.

The measures coincide with other moves Beijing has made in recent weeks to spice up confidence amongst foreign investors and businesses because it pursues a growth goal of around 5% this yr.

The Chinese government has previously admitted that meeting the 2023 goal “will not be easy,” especially as the country continues to grapple with overcapacity and waning price pressures amid a housing and debt crisis.

At the World Economic Forum in Davos earlier this yr, Georgieva outlined several short- and long-term challenges facing the world’s second-largest economy, warning that China needs structural reforms to speed up economic growth and move toward increasing domestic consumption and confidence.

Moreover, in November the IMF said it expects China’s economy to grow by 4.6% in 2024, warning of continued problems in the real estate market.

On Sunday, Georgieva highlighted China’s “most pressing near-term challenges,” which include “transitioning the real estate sector to a more sustainable footing and reducing local government debt risk.”

To avoid this scenario, China could have to take “decisive steps” to finish unfinished construction left by bankrupt developers and reduce local government debt risks, the head of the IMF said on Sunday.

In this fashion, the country could “accelerate the resolution of current problems in the real estate sector and increase consumer and investor confidence,” she added.

“A key feature of high-quality economic growth will have to be greater reliance on domestic consumption,” Georgieva said, adding that achieving this “depends on increasing the purchasing power of individuals and families.”