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China needs a "recalibration" of its zero-COVID strategy in order to bring the world's second-largest economy back on track, as the Yuan plummets and threat of a recession looms, one senior official with the International Monetary Fund (IMF) urged Wednesday.
Concerns over a global recession increased following reports last month that China’s goal of hitting 5.5% GDP growth in 2022 was far from attainable and would likely top at 3.2%, with some suggesting it could be as low as 2.8% – a drop from 8.1% GDP growth in 2021.
"Under the zero-COVID strategy, China weathered the initial impact of the pandemic well, allowing the economy to recover swiftly from the early-2020 lockdowns," IMF's First Deputy Managing Director Gita Gopinath said in a statement released Wednesday.
A man has his throat swabbed for a COVID-19 test at a coronavirus testing site in Beijing, Wednesday, Nov. 23, 2022. The ruling Communist Party promised earlier this month to reduce disruptions from its “zero- COVID” strategy by making controls more (AP Photo/Andy Wong / AP Newsroom)
China could see its GDP grow by roughly 4.4% in 2023 and 2024 if it begins to reduce its strick COVID regulations, she said, but added that "risks remain tilted to the downside, with the economy facing external headwinds from a global slowdown."
Gopinath said China’s ability to supply medical and "durable" goods during the pandemic boosted Beijing’s economy and contributed to global economic stability. "However, China’s growth has since slowed and remains under pressure amid recurring COVID outbreaks, deep challenges in the property sector, and slowing global demand."
China is the only major economy that has continued with severe economic shutdowns as COVID cases are once again on the rise across the country.
However, Beijing’s attempt to target communities by enforcing complete lockdowns has not proven entirely effective in stomping out the highly contagious virus, as Omicron variants are spreading throughout China.
Gopinath said China needs to look at investing in vaccine programs to ensure more people are able to better fend off the virus, as well as fiscal support initiatives to help vulnerable households.
Cutting interest rates and addressing global trade issues will also be critical for China’s growth in 2023 if it wants to bolster consumption and private investment.
Few cars are seen on the empty street in the recently locked down Haizhu District in Guangzhou in southern China’s Guangdong province Friday, Nov. 11, 2022. (AP Photo / AP Images)
"The regulatory tightening in the property sector, while well-intended to rein in high leverage, has added to severe financial strains for developers, leading to a rapid slowdown in housing sales and investment, along with a sharp decline in local government land sale revenues," she said.
The IMF official said re-accelerating market-based structural reforms will be "key" for medium-term growth potential, like ensuring "competitive neutrality between private and state-owned firms."
However, China will also need to address its geopolitical woes if it wants to remain a top economy, which means advancing climate-based programs and transitioning to a carbon-neutral economy she said.
People wearing face masks ride on a cart loaded with goods through a quiet street in Beijing, Wednesday, Nov. 23, 2022. (AP Photo/Andy Wong / AP Images)
Gopinath said that if China wants to address it longer term economic hurdles it will need to respond to "rising geopolitical tensions [that] pose risks of fragmentation through financial decoupling pressures" like bolstering trade, foreign direct investment, and "knowledge exchange around technology."
The IMF official said China could also boost the global economy by playing a leading role in curbing the "increasing threat of geo-economic fragmentation" and assist international counties by aiding low income nations with debt resolution.