WEBVTT - Gita Gopinath Talks China Growth

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<v Speaker 1>Bloomberg Audio Studios, podcasts, radio news Now. The International Monetary

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<v Speaker 1>Fund now expects China to grow by five percent this year,

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<v Speaker 1>raising its forecast from earlier this year to reflect these

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<v Speaker 1>strong expansions so far and recent support supportive policies from Beijing.

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<v Speaker 1>The IMF's first Deputy Managing Director, get It cup and Aarthurs,

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<v Speaker 1>told Bloomberg that although there are signs the Chinese economy

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<v Speaker 1>is recovering, more needs to be done within the property

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<v Speaker 1>sector and to support low income households.

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<v Speaker 2>We've upgraded China's growth by zero point four percentage points

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<v Speaker 2>for this year and for next, so we have growth

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<v Speaker 2>now projected at five percent for this year and four

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<v Speaker 2>point six percent for next year. There are two main

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<v Speaker 2>drivers for that. The first is the better than expected

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<v Speaker 2>first quarter GDP numbers that came out for twenty twenty four.

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<v Speaker 2>That is lifting up our growth projection. And the second

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<v Speaker 2>is we have incorporated some of the newer announcements that

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<v Speaker 2>have been made on the policy front. So those are

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<v Speaker 2>the two main reasons for the upgrade.

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<v Speaker 3>But some say five percent is actually out of reach

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<v Speaker 3>for China. They say private sector sentiment is still weak.

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<v Speaker 3>The property sector is also in the Doldrum sixteen million

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<v Speaker 3>home still unsold, and some point to Chinavanka under a

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<v Speaker 3>lot of financial stress at some point, Gita, that is

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<v Speaker 3>likely to weigh on confidence, way on sentiment, way on

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<v Speaker 3>growth as well. What's your take on that.

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<v Speaker 2>So China's economy is continuing to recover, so we certainly

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<v Speaker 2>are seeing that consumption is recovering, but still it has

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<v Speaker 2>some ways to go. The strength we're seeing in public

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<v Speaker 2>investment remains. Private investments is still weak, mainly because of

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<v Speaker 2>the weakness and the property sector. So we are seeing

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<v Speaker 2>signs of recovery, but yes, there is still more that

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<v Speaker 2>needs to We need to see more evidence of that.

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<v Speaker 2>But I think despite that, we do expect that growth

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<v Speaker 2>will be around five percent this year.

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<v Speaker 3>What more needs to be done?

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<v Speaker 2>So, firstly, I would like to rec recognize the policy

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<v Speaker 2>steps that have been taken. I mean the recent announcement

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<v Speaker 2>which involves upgrading equipment of firms but also consumer goods

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<v Speaker 2>of households. That can help, but yes, in our view

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<v Speaker 2>more will be needed, and so specifically on the property

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<v Speaker 2>sector front, I think what would be very helpful is

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<v Speaker 2>to deal with the problem of pre sold housing. So

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<v Speaker 2>there are large number of houses that have been presold

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<v Speaker 2>but have not been completed. Here we see a bigger

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<v Speaker 2>role for the central government to come in and to

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<v Speaker 2>deal with that, to be able to complete those pre

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<v Speaker 2>sold houses, because when that happens, that's going to help

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<v Speaker 2>household confidence, which is really essential at this time. It

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<v Speaker 2>also will help with the exit of non viable developers. Secondly,

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<v Speaker 2>in terms of providing support, While overall we think that

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<v Speaker 2>there should be a fiscal neutral stance, I think it

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<v Speaker 2>is important that the spending goes in the direction of

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<v Speaker 2>helping low income households because that they are the ones

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<v Speaker 2>who are able to consume more of that additional income,

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<v Speaker 2>and that will also provide a boost to the economy.

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<v Speaker 3>How are you assessing other risks? Some say that there's

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<v Speaker 3>a risk of a new trade war. Of course, we

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<v Speaker 3>had from G seven finance ministers calling out China on

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<v Speaker 3>its trade practices. We have the US saying that it

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<v Speaker 3>will reimpose those terriffs expiring, and we have China itself

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<v Speaker 3>saying that it might impose twenty five percent tariffs on

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<v Speaker 3>important autos from the US as well as Europe. How

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<v Speaker 3>might this play out? How might it impact China's economy

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<v Speaker 3>as well? As the economy of the world.

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<v Speaker 2>I was justin Strasser for these G seven meetings, so

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<v Speaker 2>I'm coming from there, and you know, there is certainly

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<v Speaker 2>we're certainly living in times where there is questions being

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<v Speaker 2>raised about the global trading system and the fairness of it.

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<v Speaker 2>The IMF as a general rule, we are strongly in

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<v Speaker 2>favor of an open, rule based trading system and therefore

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<v Speaker 2>any dispute that countries have with each other beliefs should

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<v Speaker 2>be handled through the multilateral trading system, I mean through

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<v Speaker 2>the WTO Now there are concerns that are being raised.

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<v Speaker 2>Industrial policies is something that comes up in conversations everywhere.

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<v Speaker 2>Many countries deploy industrial policies that has implications not just

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<v Speaker 2>for their own resource allocation, but also potential spill over

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<v Speaker 2>was to the rest of the world, and that is

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<v Speaker 2>generating risks of greater fragmentation. But here's where we think

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<v Speaker 2>it's critical for countries not to move unilaterally outside the

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<v Speaker 2>multilateral trading system to address this, but to work with

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<v Speaker 2>each other to strengthen the trading system, to come up

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<v Speaker 2>with better rules of engagement. When you have countries using

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<v Speaker 2>subsidies so that there's a common agreed principle on how

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<v Speaker 2>to deal with these kinds of issues.

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<v Speaker 3>You talking about industrial policy over capacity. That was one

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<v Speaker 3>issue that was raised to us by Lamaire In an

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<v Speaker 3>interview with Bloomberg. He says that perhaps cheap Chinese goods

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<v Speaker 3>will be detrimental to the whole global economy. How are

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<v Speaker 3>you assessing so?

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<v Speaker 2>Firstly, I think when we are looking at China, we

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<v Speaker 2>should just step back and recognize the macro situation. So

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<v Speaker 2>the fact that overall demand in China remains weak, we

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<v Speaker 2>still have a negative output gap predicted for China. In

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<v Speaker 2>an environment where there is weak demand, of course, that's

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<v Speaker 2>going to generate imbalances, and that's where actually needs to

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<v Speaker 2>be taken. Keep setting aside the implications for the rest

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<v Speaker 2>of the world. Just for China itself being able to

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<v Speaker 2>raise demand is going to be very helpful. Secondly, again

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<v Speaker 2>for all countries, including China, that are deploying industrial policies,

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<v Speaker 2>you have to make sure you're doing this in a targeted,

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<v Speaker 2>in a manner which is also temporary. Otherwise you're going

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<v Speaker 2>to end up with just misallocating resources within your own country. Again,

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<v Speaker 2>setting aside, the spillow is to the rest of the world.

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<v Speaker 2>So for individual countries perspective, it is important to make

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<v Speaker 2>sure the resources get well allocated. And sometimes these industrial

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<v Speaker 2>policies just distort signals and you end up with a

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<v Speaker 2>much less productive economy. So these are you know, issues

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<v Speaker 2>the countries need to pay a close attention to.

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<v Speaker 1>That was the IMF's first Deputy Managing Director, Gita Gopana,

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<v Speaker 1>speaking exclusively with Bloomberg's HASSLANDA Amen