IMF Report on Chinese Economy and My Thoughts

Hadoren

Junior Member
Registered Member
The IMF recently released
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on the Chinese economy. I took several weeks to read through it. I thought that, unlike most Western commentary - which utterly lacks useful information - this report taught me some new things.

I wrote this post about the report, if anybody is interested. Hopefully we can learn something from it haha.

Overall Thoughts
I generally thought that this report was a good-faith back-and-forth discussion between the IMF and the Chinese government. There were recommendations made with an attitude of cooperation and respect, with the IMF genuinely wanting to improve China’s economy.

Growth
The IMF believes that Chinese future growth will be low.
Structural policy trends are clouding medium-term growth prospects amid weak productivity growth, in large part because of the role of low-productivity state-owned enterprises (SOEs) and declining business dynamism. – Page 2
I’m generally skeptical of this, especially the “declining business dynamism.”

Some of the report is outdated, as it was written during Zero COVID and assumes restrictions until mid-2023. The original report assumes 3.8% GDP growth in 2023 (Page 15, Paragraph 19). Its updated forecast is 4.1% GDP growth, which is already outdated.

Most interesting was the assertion that removing local, provincial protectionism would increase growth by 10% (Pages 27-28, Paragraph 50).

Rural growth also seems to be faster than urban growth, as “per capita disposable income of rural residents continues to grow faster than that of urban residents” (Page 132, China Statement).

Housing
From reading the IMF’s analysis, it seems that fixing the housing “crisis” requires just ~2% GDP. Or ~$360 billion dollars.

Yep, all that racist Anglo “China Housing Crisis!!?!?!!!” is just pure bullsh*t. It doesn’t require trillions. It’s not going to bankrupt China. It requires about ~11% of China’s foreign reserves. And the IMF also believes this is affordable – they state that “the combined cost of these mechanisms [to fix the housing crisis] is estimated to be manageable” (Page 23, Paragraph 40).

The IMF’s analysis is very revealing (Pages 34-36, Box 1). Here’s basically several scenarios. Note that I don’t understand what “restructuring inventories” means. Does this mean developers defaulting on debts?

SituationWhat Happens…Value
Bad CaseWorst developers don’t sell a single new house.

No “restructuring recoveries.”
5% GDP
Low Amount of SalesNo recovery from 2022 sales decline.

Worst developers sell as many houses as others did in 2022.
(1-2% GDP less => average 1.5%)
Restructuring and InvestmentsRestructuring inventories.

Investments increase in value.
(1-2% GDP less => average 1.5%)
Medium CaseBad Case
(- Low Amount of Sales)
(- Restructuring and Investments)
5% GDP
(-1.5% GDP)
(-1.5% GDP)

2% GDP
Good CaseSales recover somewhat.

Worst developers sell more houses than normal developers did at the bottom of the market.
???

Not analyzed.

The IMF recommends a federal bail-out, although it seems China’s going to rely on local governments.

I also thought that the IMF’s explanation of the housing problem was extremely enlightening. Page 8, Paragraph 4 was actually the first time I ever had a clear explanation of what exactly the problem was. This was a big difference from the endless racist Anglo media worker/YouTube FUD propaganda that doesn’t explain anything at all – but merely leaves confusion and a sense of crisis. I suspect many racist Anglo media workers have no idea what was actually going on either.

Banking
I learned some interesting things about Chinese banking – which I’ve always found mysterious – from the report.

Dangerous shadow banking has steadily decreased since 2017 (Page 43, Figure 4 and Page 50, Table 4). The Western media used to always talk about how shadow banking would cause the Collapse of China, Version 2016. But I guess the problem is being fixed.

Banks are also loaning less to households and more to corporations (Page 43, Figure 4).

Trust companies are being more heavily regulated. The CBIRC is doing “a quarterly risk briefing on recent compliance and risk issues in the trust industry” (Page 92, Appendix V).

On the other hand, China didn’t implement the recommendation to “prohibit the stating of anticipated rate of return in the prospectuses of wealth management products” (Pages 91-92, Appendix V). In my time in China, I saw many of these types of products – and they always seemed kind of suspicious, or too good to be true. The recommendation sounds like a good idea; I don’t know why China doesn’t do it.

Finally, China’s capital adequacy ratio is increasing – whatever that means (Page 50, Table 4).

Spending
Generally, the IMF wants more left-wing style spending.
…a more accommodative fiscal policy stance than under the baseline and a shift to greater support for households, combined with some additional interest rate-based monetary policy easing, would promote a balanced recovery. – Page 5
They want more income and welfare transfers, with fewer tax cuts for businesses (Page 21, Paragraphs 31-32; Pages 31-32, Paragraph 61; Page 56, Appendix II).

They also want more taxation of the rich (Page 37, Box 2 and Page 60, Appendix III, Figure 1).

I generally disagree with these recommendations. I think current spending levels are fine – especially with the world facing inflation.

One thing I did find concerning was the uncomfortable M2 increase (Page 50, Table 4). It seems to always be 9%. That seems a lot like the excessive quantitative easing that’s caused so many problems in the West.

Debt
Debt generally seems okay, especially as reported by China’s statistical agencies. Debt and household debt rose because of COVID, although not to crisis levels (Page 4 table).

However, the IMF created this strange category called “augmented debt.” I think they made this figure up based on their secretive calculations – especially involving local government financing vehicles (LGFV’s). This figure makes the Chinese debt situation look scary, as if China Is About To Collapse.

To me, “augmented debt” is very vague and Uyghur genocidy. I think that a lot of LGFV’s are actually investment. To just add all LGFV’s to debt assumes that all the investments go bankrupt and have a -100% return, which is unrealistic? I may not be understanding this fully, however.

China believes that the “augmented debt” concept is also bullsh*t (Pages 128-129, China Statement). They say that LGFV’s do not have to be repaid. I also find this claim not very believable.

Communication
The IMF emphasises better communication, which they think China can improve on in order to avoid disruption. They give examples involving structural reforms (Page 28, Paragraph 50) and housing (Page 36, Box 1).

I also agree that the Chinese government can better communicate their reforms and changes.

(Continued below.)
 

Hadoren

Junior Member
Registered Member
Reforms
There is a reform section (Pages 72-83, Appendix IV and Pages 84-107, Appendix V). Appendix IV seems to have been written by the Chinese government; I notice that there are some grammatical mistakes. It feels like China just randomly threw in a list of government initiatives for the year and then said that those initiatives addressed IMF recommendations (not that listening to IMF recommendations is necessary or even recommended).

Most of Appendix IV’s reforms seem vague, just giving general directions. There are also many guidelines and pieces of advice which I didn’t understand.

Amusingly, the IMF seems to always recommend, “Let the exchange rate adjust flexibly” (Page 56, Appendix II). I guess this means to open up China’s capital account?

These are the reforms that I thought noteworthy.

Tax Cuts
China had tons of tax cuts for businesses. Anglo racist media never mentions this!

– Pages 72-73, Appendix IV

Financial Stability Sub-Committee
A “highest” priority, “near-term” IMF recommendation is a financial stability sub-committee.

However, China didn’t create one. This seems like a great idea, and I don’t know why China doesn’t do this.

– Page 84, Appendix V

Energy Consumption Reduction
China requires the reduction of energy consumption per unit of GDP by 13.5% in the 14th Five-Year Plan.

I’m not sure if this is a good idea. The West won’t recognize any efforts by China to go green. If this harms China, I don’t think it should be done.

– Page 79, Appendix IV

Collateral in Loan Classifications
The IMF wants China to “stop considering the effects of collateral in loan classifications.”

This sounded super-weird, and I don’t understand. Isn’t considering collateral in classifying loans a good thing?

– Page 88, Appendix V

Other Thoughts
  • A huge amount of local government revenue consists of “CG transfers to LG budget” (Page 41, Figure 2).
  • 93.3% of Chinese companies are now private enterprises, up from 79.4% in 2012 (Page 131, China Statement).
  • Did you know the IMF gave loans to China in the 1980s (Page 109, Informational Annex)?
  • Amusingly, one Chinese reform is to help anti-money-laundering cooperation with Senegal (Page 82, Appendix IV).
  • The Chinese statement talks about lots of “green bonds.” I’m not sure what these are, but hopefully they aren't harming the Chinese economy to get Western appreciation - which won't come anyways - on China's effort to fight global warming. (Page 134, China Statement).
Typos and Errors
“is expected to result in a somewhat smaller the current account surplus” (Page 122, Staff Supplement) =>
“is expected to result in a somewhat smaller current account surplus”

“In terms of security and rick control” (Page 106, Appendix V) =>
“In terms of security and risk control”

“For each for each phase” (Page 102, Appendix V) =>
“For each phase”

A graph on migrant workers has been copied and put in the analysis twice (Page 40, Figure 1 and Page 42, Figure 3).
 

coolgod

Captain
Registered Member
Reading the IMF report on Chinese economy is like reading NED report on human rights in China. Not sure why you are overanalyzing toilet paper propaganda.
Pro tip: take a look at countries that followed IMF recommendations and see how well their economy is doing today.
 

BlackWindMnt

Captain
Registered Member
I don't think the m2 increases is such a issue, because China seems to also increase the supply side of the inflation calculation.

That is something the west didn't really do or prepared for when supply shocks happened during covid and now the Russia sanctions. What the west did was destroy supply lines.

At least that is what my high school level macro economics brain tells me.
 

test1979

Junior Member
Registered Member
To be honest, it is too optimistic to think that an economy with a GDP of 18 trillion US dollars can still run at a real GDP growth rate of 10%, which means a GDP of 36 trillion US dollars in 7 years. Even 5% would mean $36 trillion in 15 years.
 
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nugroho

Junior Member
For me IMF report is garbage, so I think no need to read it.
For China's growth, I emphasize energy demand, although China will be more and more efficient, I think that is one thing that does not lie. China will grow min 6% until robotization and automation peak unless there is a force major ( like covid )
 

ZeEa5KPul

Colonel
Registered Member
The IMF believes that Chinese future growth will be low.
"Structural policy trends are clouding medium-term growth prospects amid weak productivity growth, in large part because of the role of low-productivity state-owned enterprises (SOEs) and declining business dynamism. – Page 2"
I’m generally skeptical of this, especially the “declining business dynamism.”
Got to have derivatives "worth" 50x your GDP to be productive.
 
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