IMF Increases China’s Growth Forecast but Cautions Against Industrial Policy

The International Monetary Fund (IMF) has upgraded its forecast for China’s economic growth this year, but has also issued a warning regarding Beijing’s industrial policies that could impact trading partners. The IMF staff stated that China needs to “scale back” these policies and focus on boosting domestic demand.

According to the IMF, China’s gross domestic product (GDP) growth forecast for 2024 has been increased to 5%, up from the previous forecast of 4.6%. Additionally, the forecast for 2025 has been raised to 4.5% from 4.1%. This change is attributed to stronger first-quarter growth and recent policy initiatives aimed at stimulating the economy following a deep property slump.

However, the IMF emphasized the need for China to restructure its economy away from inefficient industrial policies that support “priority sectors” and instead focus on promoting domestic consumption. Beijing’s growth target for 2024 remains at 5%, the same as last year and the lowest figure in decades.

There is growing concern among China’s trading partners that its industrial policies are leading to overcapacity in sectors such as vehicles and renewable energy. The IMF recommended that China rebalance its economy towards consumption, strengthen the social safety net, and liberalize the services sector to boost growth potential and create jobs.

As China continues to invest heavily in advanced industries like renewable energy, electric vehicles, and semiconductors, tensions with trading partners like the US and EU have escalated. The US has raised tariffs on Chinese electric vehicles, while the EU is conducting an anti-subsidy investigation into the industry. China has denied claims of overcapacity and subsidies in its renewable energy sector, accusing the US of containment efforts and the EU of protectionism.