The International Monetary Fund predicts that China’s economy will continue to shrink in the next four years due to various obstacles, such as an aging population, increased unemployment, and a housing crisis, faced by the world’s second largest economy.

The International Monetary Fund (IMF) released a report on Friday stating that China’s economy is expected to see a decline in growth, dropping to 4.6% this year from its 5.2% growth in 2023. The report also predicts a further decrease to 3.4% by 2028.

The real estate sector, which has traditionally accounted for around 25% of China’s total economic output, has become a major concern for the country’s economy. This was highlighted on Monday when a Hong Kong court ordered the liquidation of China Evergrande, a major property company that is facing over $300 billion in debt.

According to the report from the International Monetary Fund (IMF) on Friday, it is expected that there will be a decrease of 30% to 60% in real estate investments over the next decade compared to the levels in 2022.

The IMF report stated that without a comprehensive plan to restructure the struggling real estate sector, there could be a larger and longer decline in real estate investment, which would have a negative impact on both domestic growth and trading partners.

On January 10, Zhang Zhengxin, the executive director for China at the IMF, expressed disagreement with the findings of the fund in a statement included in the report.

Zhang stated that the Report cautions against potential dangers in China’s real estate industry, however, the staff’s prediction may be overly negative. Zhang also mentioned that there has been a notable improvement in real estate transactions since August 2023, leading to an increase in market confidence.

According to Christopher Tang, the Senior Associate Dean of Global Initiatives at the UCLA Anderson School and Faculty Director of the UCLA Center for Global Management, Chinese consumers’ spending habits are closely tied to the real estate crisis.

According to Tang, when individuals witness a decrease in the value of their home investment, they tend to decrease their overall spending. This results in a decline in consumer demand, leading to reduced production and slower economic growth. The impact is similar to a chain reaction, as the real estate market is deeply connected to years of extensive housing development and lenient lending practices from banks. Tang shared this information with VOA through email.

According to Ali Wyne, the senior research and advocacy adviser on U.S.-China affairs at the think tank International Crisis Group, the predictions of an economic decline also take into account issues such as local government debt and tensions between China and Western democracies.

According to Wyne, there is currently no indication of a sudden economic downturn, but it does appear that China’s growth obstacles are becoming increasingly difficult to overcome compared to previous years. Wyne shared this information with VOA through email.

According to the report, the IMF suggested that the Chinese government promote alternative investment methods and implement market-driven reforms to improve the nation’s economy.

According to Tang, China must implement new economic policies that focus on increasing demand and relaxing market regulations.

Tang stated that China should encourage a more open market in order to nurture competition among businesses. This can lead to job creation through the development of new startups and entrepreneurship. Additionally, there should be less emphasis on state-owned enterprises that lack motivation to innovate and compete.

Source: voanews.com