THE INTERNATIONAL MONETARY FUND’S latest update to its World Economic Outlook is generally upbeat, reflecting the likelihood of a hard landing for the global economy receding as adverse supply shocks unwind.
The Fund is now projecting 4.6% growth in China’s economy this year and 4.1% in 2025. That is an upward revision of four-tenths of a percentage point for 2024 from its previous forecasts in October 2023. The 2025 projection is unchanged
The upgrade reflects carryover from stronger-than-expected growth in 2023 and increased government spending on capacity building against natural disasters, according to the Fund.
The seemingly unending property crisis is the most significant downside risk identified by the Fund:
Absent a comprehensive restructuring policy package for the troubled property sector, real estate investment could drop more than expected and for longer, with negative implications for domestic growth and trading partners. Unintended fiscal tightening in response to local government financing constraints is also possible, as is reduced household consumption in a context of subdued confidence.
Its prescription for accelerating growth is:
Additional property sector–related reforms––including faster restructuring of insolvent property developers while protecting home buyers’ interests––or larger-than-expected fiscal support could boost consumer confidence, bolster private demand, and generate positive cross-border growth spillovers.
Government efforts to stabilise the downturn with demand-side policy support, including relaxing mortgage rates, have largely failed. Authorities will change track, directing their efforts to supply-side support, such as improving some developers’ access to financing.
The government is cautious about allowing troubled developers to go to the wall. Yet the writing is on the wall for the most indebted of all, Evergrande, whose liquidation was ordered earlier this week by the High Court in Hong Kong.
Under a 2021 agreement, Chinese courts recognise Hong Kong insolvency decisions. However, Chinese courts have recognised just one of five winding-up orders granted in Hong Kong courts since the 2021 agreement.
The liquidators, from Alvarez & Marsal, a US firm that worked on some notable corporate failures, including Lehman Bros. and Arthur Andersen, will also need to follow Mainland Chinese laws when conducting the liquidation process. That will probably mean that mainland lenders to Evergrande will be prioritised over foreign creditors.
China Bystander 