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The International Monetary Fund on Tuesday warned of risks posed by China’s financial and real estate sectors, even as it took a more optimistic view on the country’s economic growth.
The IMF. forecast that China’s economy will expand 5.4 percent this year and 4.6 percent in 2024. Each estimate was 0.4 percentage points higher than what the fund had forecast four weeks earlier.
Gita Gopinath, the fund’s first deputy managing director, said at a news conference in Beijing that the changes reflected stronger-than-expected economic performance from July to September and Beijing’s recent efforts to stimulate the economy. China said two weeks ago it would issue bonds worth nearly $140 billion to pay for repairing damage caused by last summer’s floods, as well as programs to improve the country’s resilience to climate change.
But Gopinath expressed concern about China’s real estate sector, which is facing falling prices and sales as well as loan defaults by major developers.
“It is very essential to address the problems of the real estate sector, which remains quite weak,” he said.
The fund released a summary of its annual assessment of the Chinese economy and financial system. He called on China to allow battered developers with no chance of recovery to leave the industry. China has allowed developers who are effectively insolvent to remain in business, a practice that may impede the sector’s recovery.
Gopinath said hopes earlier this year for a recovery in the property market had already been dashed by a second slump in the sector.
Zhang Qingsong, deputy governor of China’s central bank, acknowledged Tuesday at a financial conference in Hong Kong that the real estate sector had stumbled.
“We need to carefully manage its pace to avoid sharp declines and unintended consequences,” Zhang said. “We have implemented many measures to stabilize the real estate market.”
He called on China to find new ways to maintain economic growth. The state-controlled banking system has already increased loans for factory construction and other industrial investments.
“The old model of relying on investment and real estate is no longer sustainable, so we must adopt a new approach,” he said.
In Beijing, the IMF report raised the question of whether the banking system has sufficient financial reserves, a concern for investors as the country’s real estate sector continues to deflate.
“Risks to financial stability are elevated and continue to increase as financial institutions have lower capital buffers and increasing asset quality risks,” the fund wrote.
The visit by Gopinath and other senior fund officials to Beijing coincided with the release of a separate report on China’s extensive lending to developing countries.
That report, by the AidData Institute at William and Mary, a university in Williamsburg, Virginia, found that China was providing extensive bailout loans to developing countries that had borrowed from Beijing before the pandemic to pay for road construction. railway lines and other infrastructure.
Wang Wenbin, a spokesman for China’s Foreign Ministry, defended his country’s overseas lending and said he had no specific information about the AidData report. “Reasonable debt is good for economic development,” he said at a briefing after the AidData report was published. “Many countries use public debt as an important means of obtaining financing and leverage for economic development.”
Also on Tuesday, China’s government said exports fell 6.6 percent last month compared to October 2022. But half of that drop reflected a weakening of the Chinese currency, the renminbi, against the dollar.
Economists attribute some of China’s sluggish exports to lackluster interest in manufactured goods by households around the world that stocked up on consumer electronics, furniture and other goods during the pandemic. China’s imports rose 3 percent last month from a year earlier when measured in dollars, and double that when measured in renminbi.
Olivia Wang contributed to the research.