Will Davos Discuss What Reforms China Needs To Address Sluggish Growth?

In order to prevent “a fairly significant decline in growth rates,” China must implement fundamental reforms, the chief of the International Monetary Fund cautioned on Monday. At the World Economic Forum in Davos, Switzerland, Kristalina Georgieva told US media outlets that China was confronting both immediate and long-term difficulties.

She claimed that there was still “fixing” to be done in the short term in China’s property industry and high local government debt. Georgieva observed a “loss of confidence” and demographic shifts over the long run.

“Ultimately, what China needs are structural reforms to continue to open up the economy, to balance the growth model more towards domestic consumption, meaning create more confidence in people, so [they] don’t save, they spend more,” Georgieva said.

“All of this would help China to deal with what we are predicting in the absence of reforms would be a fairly significant decline in growth rates going under 4%,” she added.

China’s economy saw sluggish growth in 2023, hampered by real estate issues and a slump in exports. Investors expect the economy to have grown by around 5% last year.

Separately, the IMF said in November that it had raised its China growth forecast to 5.4% for 2023 after some policy moves by Beijing. However, the Washington, D.C.-based institution said it still expected growth to slow to 4.6% in 2024, warning of continued real estate struggles.

Georgieva is one of many top economic figures in attendance at this year’s WEF meeting, which runs through to Friday. “Rebuilding Trust” is the theme of the 2024 WEF summit, with geopolitical tensions, global fragmentation, as well as inflation and economic growth on the agenda.

Only 25% of Japanese businesses in China stated they expected the economy to grow, and the majority either reduced or maintained investment levels last year. Most also expressed pessimism about 2024.

A study conducted by the Japanese Chamber of Commerce and Industry in China among 1,713 enterprises revealed that over 400 of them had reduced their investment in China in the previous year. This was a little worse than the previous poll, which was conducted in October and revealed that over 400 businesses had made no investments in the previous year. Merely 15% of participants reported raising their investment.