China’s economy is indeed at a crossroads, grappling with significant challenges that threaten to moderate its once-stellar growth trajectory. The IMF’s latest report casts a sobering outlook, projecting that China’s growth will taper to 3.5 percent by 2028, which represents a significant downshift from the robust expansions of the past. This deceleration is attributed to two formidable headwinds: faltering productivity and the demographic dilemma of an aging population.
Central to these troubles is the lingering crisis in China’s real estate sector, where towering debt levels loom large. The plight of Evergrande is emblematic of the wider industry’s distress, with the company staggering under debts exceeding $300 billion. This week’s move by a Hong Kong court to commence liquidation of Evergrande’s international assets underscores the severity of the situation, even as the firm assures that its domestic operations remain intact.
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The IMF’s cautionary stance includes the potential for a prolonged downturn in the property market, which could sap private demand and erode investor confidence. Sonali Jain-Chandra, the IMF’s Mission Chief for China, suggests that the real estate sector’s readjustment is an ongoing process, necessitating further supportive measures to stabilize this critical segment of China’s economy.
Despite these challenges, China managed to exceed expectations with a 5.2 percent growth in the previous year, per official data. However, a dip in exports—the nation’s longstanding economic engine—marked a first in seven years, signaling strain from geopolitical frictions and a dampened global appetite for goods.
As Chinese officials gear up to set the growth target for 2024, all eyes will be on the country’s policy approach to reignite its economic engines amid these persistent pressures.
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