Chinese banks and real estate sector threaten a growing economy

The International Monetary Fund warned on Tuesday of the risks facing China’s financial and real estate sectors, even as it took a more optimistic view of the country’s economic growth.

The I.MF. predict that China’s economy will grow by 5.4 percent this year and 4.6 percent in 2024. Each estimate was 0.4 percentage points higher than the fund had predicted four weeks earlier.

Gita Gopinath, the fund’s first deputy director, said at a news conference in Beijing that the changes reflected stronger-than-expected economic performance from July through September and recent efforts by Beijing to stimulate the economy. China said two weeks ago it would issue nearly $140 billion in bonds to pay for damage from last summer’s floods, as well as programs to improve the country’s resilience to climate change.

But Ms Gopinath raised concerns about China’s housing sector, which is facing falling prices and sales, as well as loan defaults by leading developers.

“It is very essential to address the problems in the real estate sector, which is still quite weak,” she said.

The fund has released a summary of its annual assessment of China’s economy and financial system. It called on China to allow battered developers, who have no chance of turning around, to leave the industry. China has allowed developers who are effectively insolvent to continue doing business, a practice that could hinder the sector’s recovery.

Ms Gopinath said hopes earlier this year for a recovery in the housing market had already been thwarted by a second dip in the sector.

Zhang Qingsong, deputy governor of the Chinese central bank, acknowledged on Tuesday at a financial conference in Hong Kong that the real estate sector had run into problems.

“We must carefully manage its pace to avoid sharp downturns and unintended consequences,” Mr. Zhang said. “We have taken many measures to stabilize the real estate market.”

He called on China to find new ways to maintain economic growth. The state-controlled banking system has already increased lending for factory construction and other industrial investments.

“The old model of relying on investments and the real estate sector is no longer sustainable, so we need to take a new approach,” he said.

In Beijing, the IMF report raised questions about whether the banking system has sufficient financial reserves – a concern for investors as the country’s housing sector continues to deflate.

“The risks to financial stability are high and increasing as financial institutions have lower capital buffers and risks to the quality of their assets increase,” the fund wrote.

The visit of Ms Gopinath and other senior fund officials to Beijing coincided with the release of a separate report on China’s extensive lending to developing countries.

That report from the AidData Institute at William and Mary, a university in Williamsburg, Virginia, found that China provided large bailout loans to developing countries that had borrowed from Beijing before the pandemic to pay for the construction of highways, rail lines and infrastructure. other infrastructure.

Wang Wenbin, a spokesman for China’s Foreign Ministry, defended his country’s foreign loans, while saying he had no specific information about the AidData report. “Reasonable debt is good for economic development,” he said at a briefing after the AidData report was released. “Many countries use sovereign debt as an important means to attract financing and leverage for economic development.”

Also Tuesday, the Chinese government said exports fell 6.6 percent last month compared with October 2022. But half of that decline reflected a weakening of the Chinese currency, the renminbi, against the dollar.

Economists attribute some of China’s weak exports to low interest in manufactured goods from households around the world that stocked up on consumer electronics, furniture and other goods during the pandemic. Chinese imports rose 3 percent last month from a year earlier, measured in dollars, and twice as much when measured in renminbi.

Olivia Wang research contributed.