IMF urges China to boost Covid vaccinations, restore property sector confidence

The International Monetary Fund urged China on Wednesday to boost Covid-19 vaccination rates and give more robust support to its troubled property sector to restore confidence and reduce risks from a global economic slowdown and high energy prices.

In a statement following virtual meetings for its annual review of China's economic policies, the IMF said it was maintaining GDP growth forecasts issued in October. These envision growth of 3.2 per cent in 2022 and 4.4 per cent in 2023, assuming a gradual lifting of China's strict Zero-Covid strategy in the second half of next year.

"Although the zero-Covid strategy has become nimbler over time, the combination of more contagious Covid variants and persistent gaps in vaccinations have led to the need for more frequent lockdowns, weighing on consumption and private investment, including in housing," IMF First Deputy Managing Director Gita Gopinath said in a statement.

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"Going forward, a further recalibration of the Covid strategy should be well prepared and include boosting the pace of vaccinations and maintaining it at a high level to ensure that protection is preserved," Gopinath added.

The comments come as Chinese authorities are grappling with a spike in Covid cases that has deepened concern about the economy and dimmed hopes for a quick reopening.

The IMF said economic risks for China were tilted to the downside, due to headwinds from a global slowdown, higher energy prices and tighter global financial conditions.

Longer term, the Fund said rising geopolitical tensions risk fragmentation of the global economy, with China facing potential financial decoupling and limits to trade, foreign direct investment and technology access.

The IMF recommended that China's fiscal policy should be neutral in 2023 after strong support this year, but should protect the recovery and facilitate rebalancing toward more domestic consumption. It said China's monetary policy should remain accommodative and rely on interest-rate based measures.

Property support

The Fund applauded authorities' recent support initiatives for China's slumping property sector, including a loan program to help complete unfinished homes and allowing forbearance on troubled property loans.

"Building on these efforts, additional robust and well-funded mechanisms are needed for completing troubled unfinished projects and protecting new presale buyers from the risk of non-completion, while forbearance measures should be phased out," Gopinath said.

"These measures will help restore homebuyer confidence and facilitate market-based restructuring," she said, adding that in the medium term, structural reforms in the sector and new savings models can help transform the market to a more sustainable size.

The IMF also renewed its longstanding call for more market-based reforms in China, including ensuring "competitive neutrality" between private and state-owned firms.