预计2021年度中国GDP增速为7.9%（英）

　 PR21/1

　IMF Executive Board Concludes 2020 Article IV Consultation with the People’s Republic of China FOR

　IMMEDIATE

　RELEASE

　Washington,

　DC

　–

　January

　8,

　2021:

　The

　Executive

　Board

　of

　the

　International

　Monetary

　Fund (IMF)

　concluded

　the

　Article

　IV

　consultation 1

　 with

　the

　People’s

　Republic

　of

　China.

　 The

　Chinese

　economy

　continues

　its

　fast

　recovery

　from

　the

　pandemic,

　helped

　by

　a

　strong containment

　effort

　and

　swift

　policy

　actions

　to

　mitigate

　the

　impact

　of

　the

　crisis.

　GDP

　growth

　is projected

　at

　1.9

　percent

　in

　2020

　and

　7.9

　percent

　in

　2021,

　as

　economic

　activity

　continues

　to normalize

　and

　domestic

　outbreaks

　remain

　under

　control.

　Core

　inflation

　is

　expected

　to

　remain subdued,

　leaving

　CPI

　inflation

　in

　2020-21

　below

　the

　pre-crisis

　target

　of

　about

　3

　percent.

　Corporate

　leverage

　is

　expected

　to

　rise

　by

　about

　10

　percentage

　points

　of

　GDP

　in

　2020.

　The current

　account

　surplus

　is

　projected

　to

　widen

　to

　1.9

　percent

　of

　GDP

　in

　2020

　from

　1.0

　percent in

　2019,

　before

　narrowing

　to

　below

　1

　percent

　in

　2021.

　The

　projected

　temporary

　increase

　this year

　reflects

　lower

　commodity

　prices,

　the

　collapse

　in

　outbound

　tourism,

　and

　a

　surge

　in

　exports of

　pandemic-related

　and

　other

　goods

　supported

　by

　China’s

　early

　recovery

　of

　production

　and higher

　export

　prices.

　Macroeconomic

　and

　financial

　policies

　have

　supported

　the

　recovery.

　Policymakers

　have provided

　financial

　relief

　and

　fiscal

　support

　to

　protect

　the

　most-affected

　firms

　while

　safeguarding

　financial

　stability,

　including

　by

　providing

　liquidity

　to

　the

　banking

　system, expanding

　re-lending

　facilities

　to

　smaller

　enterprises,

　and

　introducing

　a

　repayment

　moratorium until

　Q1

　2021.

　The

　authorities

　have

　also

　increased

　the

　disbursement

　and

　coverage

　of unemployment

　insurance

　to

　help

　vulnerable

　households

　and

　provided

　tax

　relief

　and

　waived social

　security

　contributions

　by

　employers.

　Against

　this

　backdrop,

　the

　general

　government deficit

　(including

　estimated

　off-budget

　investment

　spending)

　is

　projected

　to

　rise

　to

　18.2

　percent of

　GDP

　in

　2020

　from

　12.6

　percent

　in

　2019.

　Structural

　reforms

　have

　progressed

　despite

　the

　pandemic,

　but

　not

　evenly

　across

　key

　areas. The

　opening

　of

　the

　financial

　sector

　has

　advanced

　with

　a

　further

　shortening

　of

　the

　negative

　lists for

　foreign

　investment

　and

　the

　removal

　of

　restrictions

　on

　the

　investment

　quota

　for

　foreign institutional

　investors.

　Labor

　market

　reforms,

　such

　as

　hukou

　reforms,

　have

　improved

　labor mobility,

　and

　the

　patent

　law

　was

　amended

　to

　strengthen

　intellectual

　property

　protection

　and foster

　innovation.

　At

　the

　same

　time,

　progress

　in

　real-sector

　reform

　has

　been

　slow,

　especially

　in the

　area

　of

　state-owned

　enterprises

　and

　competitive

　neutrality

　between

　private

　and

　state- owned

　firms.

　1 Under

　Article

　IV

　of

　the

　IMF"s

　Articles

　of

　Agreement,

　the

　IMF

　holds

　bilateral

　discussions

　with

　members,

　usually

　every

　year.

　A

　staff team

　visits

　the

　country,

　collects

　economic

　and

　financial

　information,

　and

　discusses

　with

　officials

　the

　country"s

　economic

　developments and

　policies.

　On

　return

　to

　headquarters,

　the

　staff

　prepares

　a

　report,

　which

　forms

　the

　basis

　for

　discussion

　by

　the

　Executive

　Board.

　Executive

　Board

　Assessment 2

　 Executive

　Directors

　noted

　that

　the

　COVID-19

　crisis

　has

　inflicted

　significant

　human

　and economic

　costs

　on

　China

　and

　commended

　the

　authorities

　for

　the

　effective

　containment measures

　and

　swift

　macroeconomic

　and

　financial

　policy

　support

　to

　mitigate

　the

　economic impact

　of

　the

　pandemic.

　Directors

　noted,

　however,

　that

　growth

　was

　still

　unbalanced

　and

　that fiscal,

　monetary,

　and

　structural

　policies

　should

　aim

　at

　strengthening

　private

　demand

　to

　allow for

　more

　balanced

　medium-term

　growth.

　Directors

　called

　for

　a

　continuation

　of

　the

　moderately

　supportive

　fiscal

　and

　monetary

　policies until

　the

　recovery

　is

　on

　solid

　ground,

　while

　noting

　that,

　in

　the

　medium

　term,

　fiscal

　consolidation was

　necessary

　to

　ensure

　debt

　sustainability.

　To

　maximize

　the

　policy

　space,

　they

　saw

　benefits in

　further

　improving

　the

　macro-fiscal

　framework,

　including

　intergovernmental

　coordination

　and macroeconomic

　data,

　and

　called

　for

　a

　modernization

　of

　the

　monetary

　policy

　framework

　to strengthen

　the

　transmission

　of

　conventional

　interest

　rate

　policies

　and

　enhance

　financial intermediation.

　Some

　Directors

　encouraged

　the

　authorities

　to

　focus

　on

　broader

　concepts

　of

　the

　fiscal

　deficit.

　Directors

　also

　called

　for

　enhancements

　to

　the

　social

　safety

　net

　to

　reduce precautionary

　savings,

　which

　combined

　with

　greater

　progressivity

　in

　the

　tax

　system

　would

　help address

　income

　inequality.

　Directors

　stressed

　the

　importance

　of

　addressing

　financial

　vulnerabilities

　proactively

　to safeguard

　financial

　stability.

　As

　the

　recovery

　takes

　hold,

　the

　temporary

　measures

　supporting the

　financial

　sector

　should

　be

　replaced

　with

　policies

　to

　address

　problem

　loans

　and

　strengthen regulatory

　and

　supervisory

　frameworks.

　Directors

　noted

　the

　need

　for

　a

　comprehensive

　bank restructuring

　framework

　in

　line

　with

　international

　best

　practices

　to

　allow

　for

　the

　orderly

　exit

　of weaker

　banks.

　While

　agreeing

　with

　the

　authorities

　on

　the

　potential

　benefits

　from

　digital currencies,

　Directors

　considered

　that

　more

　work

　was

　needed

　to

　assess

　risks.

　They

　also encouraged

　the

　authorities

　to

　continue

　improving

　their

　AML/CFT

　framework.

　Directors

　welcomed

　continued

　progress

　on

　structural

　reforms,

　particularly

　in

　further

　opening up

　of

　the

　financial

　sector

　and

　improving

　labor

　mobility

　through

　hukou

　reforms.

　They

　stressed the

　need

　for

　further

　reforms

　of

　SOEs,

　including

　ensuring

　competitive

　neutrality

　between

　SOEs and

　private

　enterprises,

　and

　some

　Directors

　called

　for

　the

　need

　to

　remove

　remaining

　implicit guarantees.

　Structural

　reform

　will

　be

　key

　to

　boosting

　potential

　growth,

　reduce

　external imbalances,

　and

　build

　a

　more

　resilient,

　green,

　and

　inclusive

　economy.

　Directors

　noted

　that

　while

　the

　current

　account

　surplus

　in

　2020

　should

　widen

　temporarily,

　it

　is expected

　to

　narrow

　over

　the

　medium

　term,

　reflecting

　an

　unwinding

　of

　the

　temporary

　impact

　of the

　pandemic

　and

　a

　rebalancing

　of

　economic

　growth.

　Directors

　also

　stressed

　that

　greater exchange

　rate

　flexibility

　would

　help

　the

　economy

　adjust

　to

　the

　changing

　external

　environment. Some

　Directors

　called

　for

　further

　improvement

　in

　the

　transparency

　of

　foreign

　exchange interventions

　and

　phasing

　out

　of

　capital

　flow

　management

　measures.

　Directors

　welcomed

　the

　authorities’

　commitment

　to

　global

　cooperation,

　and

　noted

　that

　China, together

　with

　its

　partners,

　had

　an

　important

　role

　to

　play

　in

　supporting

　an

　open

　and

　rules-based international

　trade

　system.

　Directors

　also

　welcomed

　China’s

　intention

　to

　play

　an

　important

　role in

　multilateral

　efforts

　to

　address

　pressing

　global

　challenges,

　including

　making

　any

　approved

　2 At

　the

　conclusion

　of

　the

　discussion,

　the

　Managing

　Director,

　as

　Chairman

　of

　the

　Board,

　summarizes

　the

　views

　of

　Executive

　Directors, and

　this

　summary

　is

　transmitted

　to

　the

　country"s

　authorities.

　An

　explanation

　of

　any

　qualifiers

　used

　in

　summings

　up

　can

　be

　found

　here: http://www.IMF.org/external/np/sec/misc/qualifiers.htm.

　vaccine

　developed

　in

　China

　widely

　available

　to

　other

　countries

　and

　in

　mitigating

　climate change.

　They

　noted

　that

　China

　has

　a

　key

　role

　to

　play

　in

　the

　G-20

　DSSI

　and

　Common Framework

　to

　provide

　debt

　relief

　to

　low-income

　countries,

　but

　noted

　that

　further

　improvements in

　data

　transparency

　were

　needed

　for

　the

　success

　of

　the

　global

　debt

　relief

　efforts.

　They welcomed

　China’s

　ambitious

　plans

　for

　emissions

　abatement

　and

　increased

　green

　investment.

　 NATIONAL ACCOUNTS China: Selected Economic Indicators 2015 2016 2017 2018 2019 2020 2021 2022 2023 2024 2025

　Projections

　(Annual percentage change, unless otherwise indicated) Real GDP (base=2015)

　6.9 6.8 6.9 6.7 6.1 1.9 7.9 5.7 5.6 5.5 5.4 Total domestic demand

　7.3 7.9 6.8 7.4 5.5 1.5 8.7 5.8 5.6 5.6 5.4 Consumption

　8.3 8.5 7.3 8.1 6.4 -0.8 11.3 6.4 6.5 6.2 6.1 Investment

　6.1 7.2 6.1 6.5 4.5 4.6 5.4 5.1 4.6 4.8 4.5 Fixed

　7.9 7.3 5.9 7.1 5.1 4.3 6.3 4.9 4.6 4.8 4.5 Inventories (contribution) -0.6 0.0 0.1 -0.2 -0.2 0.2 -0.3 0.1 0.0 0.0 0.0 Net exports (contribution) -0.1 -0.8 0.3 -0.5 0.7 0.4 -0.5 0.0 0.0 0.0 0.0 Total capital formation (percent of GDP)

　43.0 42.7 43.2 44.0 43.1 43.1 41.8 41.2 40.4 39.6 38.8 Gross national saving (percent of GDP) 1/

　45.8 44.5 44.8 44.1 44.1 45.0 42.7 42.0 41.1 40.2 39.4 LABOR MARKET

　 Unemployment rate (annual average) 2/

　5.0 5.0 5.0 4.9 5.2 5.4 … … … … … Employment

　0.3 0.2 0.0 -0.1 -0.1 -0.3 0.2 0.1 0.1 0.1 0.1 PRICES

　 Consumer prices (average)

　1.4 2.0 1.6 2.1 2.9 2.4 0.5 1.9 1.9 2.0 2.0 GDP Deflator

　0.1 0.9 3.9 3.5 2.4 2.1 1.6 2.1 2.1 2.2 2.2 FINANCIAL

　 7-day repo rate (percent)

　2.4 2.7 5.4 3.1 3.1 … … … … … … 10 year government bond rate (percent)

　3.7 3.0 3.9 3.3 3.2 ... ... ... ... ... ... Real effective exchange rate (average)

　9.8 -4.9 -2.9 1.4 -0.8 … … … … … … Nominal effective exchange rate (average)

　9.7 -5.4 -2.5 1.5 -1.8 … … … … … … MACRO-FINANCIAL

　 Total social financing

　12.5 30.5 14.1 10.3 10.7 13.8 12.2 9.4 8.8 8.4 7.9 In percent of GDP

　200 242 248 248 253 276 283 287 290 291 292 Total nonfinancial sector debt 3/

　14.5 16.8 14.3 10.8 10.7 13.9 12.4 9.8 9.2 8.7 8.2 In percent of GDP

　222 241 248 248 253 277 284 289 293 295 297 Domestic credit to the private sector

　15.9 12.6 11.6 8.3 9.2 12.0 11.0 7.9 7.5 7.1 6.5 In percent of GDP

　161 168 169 166 167 179 182 182 181 180 178 House price 4/

　9.1 11.3 5.7 12.3 8.6 7.0 6.5 6.2 5.9 5.8 5.7 Household disposable income (percent of GDP)

　61.1 61.6 60.1 59.3 59.1 57.6 59.2 59.1 58.9 58.6 58.3 Household savings (percent of disposable income)

　38.4 37.2 35.7 34.8 34.4 37.1 33.7 31.8 29.9 27.9 25.9 Household debt (percent of GDP)

　39.1 44.7 48.9 52.3 55.6 58.3 61.3 62.4 64.0 64.9 66.0 Non-financial corporate domestic debt (percent of GDP)

　122 124 120 113 111 121 120 119 117 115 112 BIS credit-to-GDP gap (percent of GDP)

　25.4 20.8 11.8 0.3 -2.2 … … … … … … GENERAL BUDGETARY GOVERNMENT (Percent of GDP)

　 Net lending/borrowing 5/ -2.8 -3.7 -3.8 -4.7 -6.3 -11.9 -11.0 -10.1 -9.1 -8.3 -7.5 Revenue

　28.8 28.2 27.8 28.3 27.7 24.5 25.0 25.3 25.8 26.5 27.1 Additional financing from land sales

　1.9 2.0 2.5 2.8 2.9 2.9 2.9 2.9 2.9 2.9 2.9 Expenditure

　33.5 33.9 34.2 35.8 36.9 39.3 38.9 38.3 37.9 37.8 37.6 Debt 6/

　36.7 36.7 36.2 36.5 38.1 44.7 47.2 49.5 51.2 52.6 53.8 Structural balance -2.5 -3.4 -3.6 -4.5 -6.0 -10.6 -10.3 -9.6 -8.8 -8.1 -7.5 BALANCE OF PAYMENTS (Percent of GDP)

　 Current account balance

　2.7 1.8 1.6 0.2 1.0 1.9 0.9 0.8 0.8 0.6 0.5 Trade balance

　5.2 4.4 3.9 2.9 3.0 3.5 2.6 2.8 2.6 2.5 2.4 Services balance -2.0 -2.1 -2.1 -2.1 -1.8 -1.1 -1.3 -1.7 -1.7 -1.7 -1.7 Net international investment position

　15.1 17.4 17.1 15.5 14.7 16.1 15.2 14.8 14.4 13.9 13.4 Gross official reserves (billions of U.S. dollars) 3,406 3,098 3,236 3,168 3,223 3,579 3,842 4,127 4,427 4,734 5,056 MEMORANDUM ITEMS

　 Nominal GDP (billions of RMB) 7/ 69,209 74,598 82,898 91,577 99,493 103,462 113,377 122,286 131,750 142,072 153,020 Augmented debt (percent of GDP) 8/

　55.2 66.4 72.8 76.4 80.5 91.7 96.4 101.4 105.6 109.3 112.7 Augmented net lending/borrowing (percent of GDP) 8/ -8.7 -15.9 -13.5 -11.8 -12.6 -18.2 -17.2 -16.3 -15.4 -14.6 -13.8 Sources: Bloomberg, CEIC, IMF International Financial Statistics database, and IMF staff estimates and projections. 1/ IMF staff estimates for 2019. 2/ Surveyed unemployment rate. 3/ Includes government funds. 4/ Average selling prices estimated by IMF staff based on the data of national housing sale values and volumes published by the National Bureau of Statistics 5/ Adjustments are made to the authorities" fiscal budgetary balances to reflect consolidated general budgetary government balance, including government-managed funds, state- administered SOE funds, adjustment to the stabilization fund, and social security fund. 6/ The estimation of debt levels after 2015 assumes zero off-budget borrowing from 2015 to 2025. 7/ Expenditure side nominal GDP. 8/ The augmented balance expands the perimeter of government to include government-managed funds and the activity of local government financing vehicles (LGFVs).

　 December 2, 2020 PEOPLE"S

　REPUBLIC

　OF

　CHINA

　STAFF REPORT FOR THE 2020 ARTICLE IV CONSULTATION KEY ISSUES Context. The Chinese economy continues its fast recovery from the health and economic crisis as a strong containment effort and macroeconomic and financial policy support have mitigated the crisis impact and helped the economy rebound. However, growth is still unbalanced as the recovery has relied heavily on public support while private consumption is lagging. Rising financial vulnerabilities and the increasingly challenging external environment pose risks to the outlook. Important reforms have progressed despite the crisis, but unevenly across key areas. Policies. Key policies to secure the recovery and return to balanced growth include:  Adjusting policy support to the recovery. As private demand improves, macro policy support should remain moderately expansionary in 2021. Fiscal policy should shift its focus towards strengthening social safety nets and promoting green investment. Given low inflation, monetary policy should remain accommodative while phasing out potentially distortionary measures such as lending targets and lending rate guidance as the recovery takes hold.  Making policy support more effective to maximize policy space. With public debt high and rising, improving the macro-fiscal framework and intergovernmental coordination while leveraging digital technologies to deliver support to vulnerable groups will make fiscal policy more effective. Further modernization of the monetary policy framework to strengthen the transmission of conventional interest rate policies would help improve credit intermediation.  Containing rising financial risks proactively. As the recovery takes hold, exceptional policy support measures should be replaced with proactive efforts to address problem loans and strengthen regulatory and supervisory frameworks. Resuming financial regulatory strengthening will help reduce shadow-banking risks. A comprehensive bank restructuring framework is needed to lower systemic risks and continue de-risking.  Structural reforms to enhance the role of the private sector. Simultaneous implementation of key reforms—a further opening up of domestic markets, reforming SOEs, and ensuring competitive neutrality with private firms while promoting green investment and strengthening social safety nets—will support a job-rich and balanced recovery and help boost potential growth, reduce external imbalances, and build a more resilient, green, and inclusive economy.  Leading global solutions. China should continue to lead multilateral efforts to address global challenges. This includes supporting global efforts to expand vaccine access, providing debt relief to low-income countries and sustainable financing for global infrastructure investment, and tackling climate change. China and its trading partners should work together to build a more open, stable, and transparent rules-based international trade system.

　 Approved

　By

　Kenneth Kang and Sanjaya Panth

　 CONTENTS

　COVID-19 CRISIS AND RISING EXTERNAL TENSIONS

　4 UNBALANCED RECOVERY SO FAR

　 5 GRADUAL HANDOFF TO PRIVATE DEMAND

　12 POLICIES TO SECURE THE RECOVERY AND RETURN TO BALANCED GROWTH

　18 A. Supporting Growth and Ensuring Financial Stability

　 18 B. Maximizing Policy Space by Improving Policy Transmission

　 25 C. Adjusting Macroeconomic Policy to the Pace of the Recovery

　28

　INCLUSIVE, GREEN, AND HIGH-QUALITY GROWTH

　29 A. Re-Accelerating Reforms to Support Balanced Growth

　29 B. Helping Solve the Global Crisis

　33 STAFF APPRAISAL

　34 BOXES 1. China’s Exit Strategy From COVID-19

　37 2. Impact of China’s Monetary and Credit Policies Amid COVID-19

　38 3. Tracking Economic Activity in China

　40 4. Lockdowns’ Spillovers Through Trade

　 41 5. Progress on Structural Reforms

　42 6. The Effects of Technological Decoupling

　 43 7. China’s Fiscal Policy: A Medium-Term Rebuilding

　 44 8. China’s Development of a Central Bank Digital Currency

　45 9. Summary of the Communique on China’s 14th 5-Year Plan

　46 Discussions took place by video conference October 26-November 4, 2020. The team comprised H. Berger (head), D. Cerdeiro, W. Chen, F. Han, S. Jahan, J. Kang, C. Ruane (all APD), J. Ralyea (FAD), H. Hoyle (MCM), F. Zhang (RES), H. Lin (SPR), and S. Barnett, P. Jeasakul, and X. Li (Resident Representatives). K. Kang (APD) joined the concluding meetings. Z. Jin, Z. Zhang, and Y. Liu (all OED) joined the official meetings. A. Balestieri, J. Li, Q. Shan, and C. Zhou supported the mission.

　 FIGURES 1. Recent Developments—The V-Shaped Recovery

　47 2. Rebalancing—Regression in Wake of the Crisis

　48 3. External—Increasing Current Account Surplus and Volatile Capital Flows

　49 4. Fiscal—Pandemic Response Accentuated Existing Trends

　50 5. Monetary—Policy Eased but Inflation Remained Low

　 51 6. Credit—Credit Growth Accelerated and Debt Levels Increased

　52 7. Financial Market—Funding Conditions Turned Tighter After Initial Easing

　53 8. Banks—Sector Expands Amid Rising Profitability Pressures

　 54

　TABLES 1. Selected Economic Indicators

　55 2. Balance of Payments

　56 3. External Vulnerability Indicators

　 57 4. Monetary and Credit Developments

　58 5. General Government Fiscal Data

　59 6. Nonfinancial Sector Debt

　60 7. Rebalancing Scorecard

　61 8. SOE Performance

　62

　APPENDICES I. External Sector Assessment

　 63 II. Risk Assessment Matrix

　65 III. Debt Sustainability Analysis

　66 IV. Implementation of Main Recommendations of the 2019 Article IV Consultation

　78 V. Implementation of Main Recommendations from China’s 2017 FSAP

　84

　Source:

　China

　National

　Health

　Commission. Note:

　Imported

　cases

　are

　not

　included.

　15-Nov-20

　0

　0

　20-Jan-20

　12-Mar-20

　12-Mar-20

　20

　2,000

　40

　6,000

　 4,000

　60

　8,000

　80

　10,000

　100

　12,000

　After Mar

　12

　120

　Before Mar

　12

　14,000

　China:

　Local

　outbreaks

　since

　March

　have

　been

　contained

　(Daily

　increase

　of

　confirmed

　Covid-19

　cases

　in

　China) 16,000

　140

　China:

　Amid

　pandemic,

　China‘s

　“Phase

　1”

　U.S.

　imports

　rising more

　slowly

　than

　implied

　by

　the

　agreement

　(In

　billions

　of

　U.S.

　Dollar;

　cumulative

　amount) 250

　200

　150

　Purchase commitment

　(with even

　monthly targets)

　100

　2017

　Baseline

　50

　2020

　Actual

　0

　Jan

　Feb

　 Mar

　 Apr

　 May

　 Jun

　 Jul

　Aug

　 Sep

　Oct

　 Nov

　 Dec

　 Source:

　China

　Customs

　and

　IMF

　staff

　calculations.

　Note:

　The

　annual

　target

　for

　2020

　is

　$219

　billion,

　assuming

　China

　keeps

　its imports

　of

　other

　U.S.

　goods

　that

　are

　not

　covered

　by

　the

　“Phase

　1“

　agreement

　at the

　2017

　level

　of

　$47

　billion.

　 COVID-19 CRISIS AND RISING EXTERNAL TENSIONS 1. The COVID-19 crisis has inflicted significant human and economic costs on China, but a strong containment effort has kept the outbreak under control.  Human and economic costs were the highest in the first quarter. China was the first country to suffer a COVID-19 outbreak, which took the lives of more than 4,600 people. But the extension of the national Lunar New Year holiday, travel restrictions, and the lockdown of Hubei province (the epicenter of the outbreak), along with other measures, have helped contain the spread of the virus in China even as it has spread globally. Economic activity came to a sudden halt, with GDP contracting by 6.8 percent (y/y) in the first quarter for the first time in more than 40 years.  Effective and well-targeted containment efforts have helped the economy go back to work. Containment measures have been calibrated across regions based on specific risk assessments, and the resumption of economic activity has prioritized low-risk regions and essential sectors. With the virus retreating at the national level, the government has successfully adopted a granular and targeted approach in response to localized outbreaks, by combining intensive testing, effective contact tracing, and localized mobility restrictions (Box 1). At the same time, policy support has helped rapidly expand testing capacity and increase production of medical and protective supplies, while digital technologies such as big data and artificial intelligence have been leveraged to facilitate contact tracing and, where still necessary, travel and other restrictions.

　2. The pandemic has taken place as the external environment has become more challenging. The tensions with the U.S. have escalated beyond trade to technology access and

　 financial markets. 1

　 While China and the U.S. remain committed to the “Phase 1” deal, trade data for the first ten months of the year suggest China’s purchases of goods would have to accelerate significantly to meet the purchase commitments. Trade disputes have also emerged elsewhere and concerns about the reliability of global supply chains have prompted some countries to bring production home or reduce reliance on any single trading partner such as China, while rules on inward foreign direct investment (FDI) have been tightened. The European Union is considering whether foreign subsidies distort its internal market, and the resulting regulatory amendments could have consequences for Chinese firms operating abroad. 3. Reforms have continued, but there is still significant room to improve economic resilience. Despite the crisis, important progress has been made, for example, in financial sector opening up. However, reform progress on state-owned enterprises (SOEs) and competitive neutrality has been lagging, contributing to lower productivity and growth. China’s reliance on external demand has declined significantly, but, lacking a strong social safety net, household saving remains excessively high. Financial regulatory strengthening has advanced, but financial vulnerabilities remain elevated. While not closing these reform gaps ahead of the crisis has left China’s economy less resilient than it could have been, pressing ahead with reforms will help secure the recovery, accelerate the return to more balanced growth, and contribute to lowering global imbalances.

　UNBALANCED RECOVERY SO FAR 4. Strong and swift policy actions helped mitigate the economic impact of the crisis and prepare the recovery. Policymakers provided financial relief and fiscal support to protect the most-affected firms while safeguarding financial market stability through liquidity provision to the banking system. The People’s Bank of China (PBC) expanded its re-lending facilities to provide targeted support to manufacturers of medical supplies and daily necessities as well as micro-, small- and medium-sized enterprises (MSMEs). The authorities have allowed banks to avoid classifying troubled loans to epidemic-hit MSMEs as non-performing loans (NPLs), tolerated rising NPLs in heavily impacted regions and sectors, and introduced a repayment moratorium for most MSMEs and other eligible firms until early 2021. For households, the authorities accelerated disbursement of unemployment insurance while extending its coverage to some migrant workers and lengthening the application and benefit period by six months to 18-30 months. The authorities also provided various tax relief measures and waived part of social security contributions by employers to protect employment. Moreover, the government has increased spending on epidemic prevention and control and the national public health emergency management system.

　 1

　Among other actions, the U.S. has tightened export restrictions to selected Chinese technology companies, enacted a law that can lead to sanctions on foreign financial institutions operating in Hong Kong SAR, and taken steps to delist Chinese firms from U.S. stock exchanges that fail to comply with U.S. accounting standards and to force sales of Chinese firms to the U.S.

　2020M10

　 5. With the successful reopening of the economy, fiscal policy has shifted to demand support. Staff estimates that discretionary fiscal measures amount to about 4.7 percent of GDP in 2020, centered on an increase in infrastructure investment, providing an estimated boost of 2.2 percentage points to GDP growth. With automatic stabilizers further increasing spending and lowering revenue, the augmented general government deficit is projected to rise by 5.6 percentage points of GDP to 18.2 percent in 2020. 2

　 Augmented debt is expected to reach 92 percent of GDP—much higher than the EM average of about 64 percent—and continue to rise over the medium term. While debt is high, the public finances benefit from a very advantageous growth-interest rate differential and a high national savings at around 43 percent of GDP, bound to be invested domestically. 6. Monetary policy has been supportive, leaning heavily on non-interest rate instruments.  The PBC has lowered various policy rates— in particular, the 7- and 14-day short-term reverse repo rates by 30 basis points and 1-year medium-term lending facility (MLF) rate by 30 basis points—reducing loan rates especially to corporates. However, slow adjustment of deposit rates and capital shortages in smaller banks have constrained some banks’ ability to provide new financing to the private sector (SIP 1).

　 To provide additional support especially to smaller firms, the PBC, in collaboration with other authorities, has deployed a wide range of non-interest rate instruments, including further expanding its re-lending facilities with guidance on lending rates, reducing targeted reserve requirement ratios (RRRs), increasing bank lending targets, expanding credit support by policy banks, subsidizing local banks’ loan repayment moratoria, and introducing a new zero- interest “funding-for-lending” scheme for uncollateralized lending to micro- and small-sized enterprises. These measures, combined with window guidance to steer credit to hard-hit sectors, had a significant positive impact on bank lending as well as corporate and government bond issuance, leading to a rapid credit expansion with total social financing (TSF) growth accelerating to 13.7 percent (y/y) as of October, up from 10.7 percent at end- 2019 (Box 2).

　7. Following the fast rebound in the second quarter, the economy continued its fast recovery in the third quarter, but growth remains unbalanced.

　2

　The general budgetary deficit and debt would rise to 3.7 and 44.7 percent of GDP, respectively, in 2020. Source:

　CEIC;

　and

　IMF

　staff

　calculations.

　2020M11

　2020M7

　2020M4

　2020M1

　1.0

　2019M10

　China:

　Monetary

　policy

　support

　included

　lower

　policy

　rates

　(In

　percent) 3.5

　3.0

　2.5

　2.0

　1.5

　7-day

　reverse

　repo

　rate 14-day

　reverse

　repo

　rate 1-year

　targeted

　MLF

　rate

　1-year

　MLF

　rate

　2020Q2

　  The recovery so far has relied heavily on public support, while private consumption remained weak. Real GDP grew by 4.9 percent (y/y) in the third quarter, following the rebound of 3.2 percent in the second quarter (Box 3). The rapid recovery was driven by the combination of a large increase in government spending, heavy on investment, and the decision to prioritize opening production facilities in the exit from the lockdown. Real estate investment returned to positive growth by the summer, with housing starts outpacing sales. Following the recovery in manufacturing, private investment strengthened around the same time. In contrast, the recovery of private consumption has been much more gradual, reflecting continued social distancing in person-to-person services, a significant drop in the growth of average household income amid still-weak labor market conditions, and the increase in precautionary savings owed, in part, to the still very limited social safety net. Real retail sales are still below their pre-crisis levels and unemployment remains elevated. 3

　  Exports have held up well despite the more difficult external environment. While the pandemic and lockdowns significantly compressed global trade overall (Box 4), Chinese firms—supported by an earlier recovery of production—have seen strong demand for medical and protective equipment and work-from-home-related electronics, with demand broadening beyond pandemic-related goods more recently. The value of merchandise exports increased by 0.5 percent (y/y, in USD) in the first 10 months of 2020, despite an

　3

　The official survey-based urban unemployment rate has improved to 5.3 percent in October, down from 6.2 percent in February. However, this statistic likely underestimates the remaining impact of the crisis as it does not fully capture job losses among migrant workers. New urban jobs that have been created this year until October remained about 15 percent below new urban job creation during the same period in 2019. China:

　“V”-shaped

　recovery

　driven

　by

　investment

　while consumption

　recovers

　more

　slowly

　(Real

　growth

　in

　percent,

　year-on-year) 10

　 8

　6

　4

　2

　0

　-2

　Net

　Export

　Investment

　-4

　Consumption

　GDP

　-6

　-8

　2015Q1

　2015Q4

　2016Q3

　2017Q2

　2018Q1

　2018Q4

　2019Q3

　2020Q3

　Source:

　CEIC;

　and

　IMF

　staff

　calculations.

　China:

　Private

　consumption

　impacted

　by

　falling

　household income

　and

　higher

　precautionary

　savings

　(Nominal

　growth

　in

　percentage

　points,

　2020

　minus

　2019) 10

　 5

　 0

　 -5

　 -10

　 -15

　Consumption

　Growth

　Income

　Growth

　Savings

　Rate

　-20

　Q1

　Q2

　Q3

　Source:

　CEIC;

　NBS

　Household

　Survey;

　and

　IMF

　staff

　calculations.

　Note:

　Savings

　Rate

　calculated

　as

　(1

　-

　household

　consumption

　per

　capita

　/ household

　disposable

　income

　per

　capita).

　China:

　Export

　rebound

　driven

　by

　pandemic-related

　goods

　(In

　percent,

　year-on-year

　growth

　of

　3-month

　sum

　of

　USD

　export

　value) 12

　10

　8

　6

　4

　2

　0

　-2

　-4

　All

　other

　goods

　-6

　Textiles

　(incl

　facemasks)

　-8

　Office

　machines

　-10

　Medical

　devices

　-12

　Total

　-14

　-16

　2019M4

　2019M7

　2019M10

　2020M1

　2020M4

　2020M7

　2020M10

　Source:

　CEIC;

　and

　IMF

　staff

　calculations.

　2020M9

　10

　 0

　 -10

　Private

　enterprises

　-20

　 -30

　2019M2

　2019M5

　2019M8

　2019M11

　 2020M3

　2020M6

　2020M10

　Source:

　China

　National

　Bureau

　of

　Statistics

　and

　IMF

　staff

　 calculations.

　 Note:

　Public

　enterprises:

　 Investment

　in

　construction

　and

　purchase

　of

　fixed assets

　by

　state

　owned

　and

　controlled

　enterprises.

　 Private

　enterprises: Domestic

　investment

　in

　construction

　and

　purchase

　of

　fixed

　assets

　by collective,

　private,

　and

　personal

　enterprises

　 and

　institutional

　units

　as

　well

　as the

　enterprises

　 controlled

　by

　these

　units.

　Public

　enterprises

　20

　China:

　SOEs

　led

　the

　recovery

　in

　corporate

　investment

　(Nominal

　growth

　in

　percent,

　year-on-year) 30

　 estimated decline in volume of 3 percent. On the other hand, the value of merchandise imports declined by 2.3 percent (y/y, in USD) during the same period, reflecting mostly lower commodity prices as import volume increased by an estimated 4 percent. The relatively strong domestic recovery, improved global risk sentiment, and continued financial opening- up have attracted large portfolio inflows since the second quarter. 4

　8. Core inflation has been subdued, while food price inflation has stabilized. Reflecting a still-large output gap—estimated at around -3½ percent of potential GDP on average for 2020—core CPI inflation, which tends to reflect demand conditions with a lag, remained at 0.5 percent (y/y) in October. Food price inflation, which stayed high due to the lingering effects of the African swine fever and heavy rains and floods in the summer, has recently stabilized, leading to the decline o...