Covid

IMF Urges China Rethink on Zero-Covid, Property Crisis

China has stuck with a zero-Covid approach nearly three years into the pandemic that involves lockdowns, quarantines and testing.

A senior International Monetary Fund (IMF) official has called on China to rethink its zero-Covid policy and look for solutions to its long-running property crisis.

China could avoid further lockdowns if it uses “effective vaccines, such as mRNA vaccines,” and boosts its jab rate, especially among older people, said Krishna Srinivasan, the IMF’s Asia and Pacific director.

“China has made some changes in terms of making it a bit more flexible, but we feel that this strategy could be a drag on the economy,” Srinivasan said. “This is an issue which needs to be addressed.”

While China has avoided the ravages of widespread infections and deaths, it lacks herd immunity, with its vast elderly population especially exposed.

China’s strategy was one of the reasons why the IMF cut the country’s 2022 gross domestic product (GDP) growth forecast to 3.3% from 4.4% in its latest World Economic Outlook published this week.

This would be the country’s lowest growth in more than four decades, excluding during the initial Covid-19 crisis in 2020, the outlook added.

China’s pandemic policy is not the only factor behind the IMF’s concerns over the economic slowdown. Rising home prices and surging household debt helped fuelled a crisis in the real estate sector.

Mortgage Crisis In China

China is expected to launch a real estate fund to help property developers resolve a crippling debt crisis, aiming for a war chest of up to 300 billion yuan ($44 billion).

It would be the first major step by the state to rescue the sector since its debt troubles became public last year.

Srinivasan said the fund measure was a “fix” but added the amount might not be enough and urged Beijing to look for sustainable long-term solutions.

“You need to know which developers face what kind of constraint and how many of them are viable,” he said. “The strategy needs to be fully fleshed out and that’s what is lacking right now.”

“The intention of the government to reduce leverage in the real estate sector was completely right, but it has been a drag on growth,” Srinivasan said.

“Now many households are refusing to pay their mortgages because there are many housing projects which have not been finished.”

Reuters, with additional editing by George Russell

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George Russell

George Russell is a freelance writer and editor based in Hong Kong who has lived in Asia since 1996. His work has been published in the Financial Times, The Wall Street Journal, Bloomberg, New York Post, Variety, Forbes and the South China Morning Post.