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China told it faces 'fork in the road' as officials meet CEOs

Published 03/24/2024, 02:18 AM
Updated 03/24/2024, 06:51 AM
© Reuters. Journalists watch a giant screen showing live-streaming footage of Chinese Premier Li Qiang delivering a speech at the opening ceremony of China Development Forum (CDF) 2024, in Beijing, China March 24, 2024. REUTERS/Jing Xu

By Colleen Howe and Jing Xu

BEIJING (Reuters) -China needs to "reinvent itself" with economic policies to speed resolution of its property market crisis and boost domestic consumption and productivity, the International Monetary Fund's Managing Director Kristalina Georgieva said on Sunday.

"China faces a fork in the road — rely on the policies that have worked in the past, or reinvent itself for a new era of high-quality growth," Georgieva said in remarks to a meeting of senior Chinese officials and executives from global companies.

Officials who spoke at the opening of the China Development Forum expressed confidence China would hit its economic targets, including growth of about 5% this year, and pledged further support for companies in strategically important sectors, an area Chinese President Xi Jinping has dubbed "new productive forces."

But those commitments stopped short of the more sweeping changes urged by the IMF. Georgieva said an analysis by the IMF showed a more consumer-centered policy mix could add $3.5 trillion to China's economy over the next 15 years. If achieved, that boost would be equivalent to adding output equivalent to more twice the size of South Korea's economy.

To do that China would need to take "decisive" steps to complete unfinished housing stranded by bankrupt developers and to reduce risks from local government debt, the IMF chief said.

"A key feature of high quality growth will need to be higher reliance on domestic consumption," Georgieva, a Bulgarian economist, said. "Doing so depends on boosting the spending power of individuals and families."

Other economists have also urged a new growth model for China. But the IMF remarks were significant in coming at the outset of a two-day meeting where Beijing is looking to push the message China is open for business.

Foreign investment flows into China shrank nearly 20% in the first two months of the year, data released Friday showed, and officials have been stepping up efforts to attract investors at a time when many companies have been looking to "de-risk" supply chains and operations away from China.

In 2023, foreign direct investment into China contracted by 8%, reflecting a shaky economic recovery and tensions with the United States and its allies on a range of issues.

Apple (NASDAQ:AAPL) CEO Tim Cook, the highest-profile executive at the Beijing event, told China state broadcaster CGTN he had an "outstanding" meeting with China's Premier Li Qiang.

Cook was quoted in state-run CCTV Finance saying that Apple's Vision Pro will hit the mainland China market this year and that the company will continue to ramp up research and development investment in China.

"I think China is really opening up," Cook told a CGTN interviewer on the sidelines of the meeting. He later said Apple's China-based suppliers had helped deliver gains in more sustainable manufacturing, including lowering water use and recycling metals like aluminum and cobalt.

Stephen von Schuckmann, a board member and executive at ZF Group who oversees the auto supplier's battery-drive operations, said the company was committed to China, which leads the world in electric car sales and production.

"Any wording and hype about an exodus in the supply chain is not what we follow," he said in remarks published by CGTN. "We're invested. We're here to stay."

Over 100 overseas executives and investors were attending the China Development Forum and a series of smaller closed-door sessions with Chinese officials on Friday and Saturday.

China's cabinet last week unveiled steps intended to win investment, including expanded market access and pilot programmes to encourage investment in science and technology.

© Reuters. Journalists watch a giant screen showing live-streaming footage of Chinese Premier Li Qiang delivering a speech at the opening ceremony of China Development Forum (CDF) 2024, in Beijing, China March 24, 2024. REUTERS/Jing Xu

On Sunday, Li said China's previously announced $140-billion plan to issue ultra-long bonds would create a fund to spur investment and stabilise growth.

Other officials highlighted Xi's commitment to drive investment in "new productive forces," industries that officials have said includes networked electric vehicles, spaceflight and cutting-edge drug development.

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