Steven Alan Barnett (Barnett), senior IMF resident representative in China, shared his views on the significance of China's economic revival this year in an interview.

Q: The IMF's previous forecast for China's GDP growth this year was 4.4 percent, before being revised upward to 5.2 percent. What is behind the raise?

Barnett: We revised our forecast for growth this year to 5.2 percent. This is up from 3.0 percent growth last year, and as you note, an upward revision from our previous forecast. 

The key reason is the exit from the Dynamic Zero-COVID policy late last year. This has set the stage for a considerable improvement in economic activity. Thus, we expect activity to rebound throughout this year, especially household consumption which was subdued during 2022.

The outlook, however, is subject to higher-than-usual uncertainty. The key risks are related to the uncertain path of the pandemic, lingering challenges in the property sector, and the weak global growth outlook. On global growth, we forecast it to decline from 3.4 percent last year to 2.9 percent this year. We also assess that the balance of risks for global growth are tilted to the downside. 

Q: The IMF suggested in recent briefing that China's economic growth this year will be driven by consumption rather than investment, what is the basis for this judgment? What do you expect China's consumption growth rate to be this year?

Barnett: A key reason for the rebound in growth this year will be in increase in consumer spending. Last year, household spending on dining out, domestic tourism, and recreation was held back as a result of the pandemic. With the lifting of the Dynamic Zero-COVID policy late last year and the subsiding COVID wave, we expect household spending to rebound.

We project that household consumption will contribute about 50 percent of GDP growth this year. This is a welcome development. Beyond the cyclical increase, we recommend reforms that would enable consumption to increasingly drive growth in the years ahead. This would be good for households in China, who benefit from more consumption. It would also make a significant contribution to achieving China's climate goals. As the economy pivots toward consumption, it also becomes greener. In short, consumption is less polluting than investment.

Q: What is your personal experience of the speed of China's economic recovery since the optimization of China's anti-COVID policy in December?

Barnett: I can feel and see the change in my day-to-day life. It is nice to see the restaurants crowded, people walking around town, and the malls packed. Even the return of Beijing's rush-hour traffic jams is a sign of how quickly the economy is rebounding. Many of my friends and colleagues are also again traveling — both within China and abroad, and for both work and pleasure. This is one illustration of the pent-up consumer and business demand that will propel activity in the near term. 

Q: At a recent event, Thomas Helbling said China's economy faces significant spillover effects this year, how much do you think it will contribute to world's growth? In which sectors will China's economic growth boost other countries' economies?

Barnett: China's rebound in 2023 provides a welcome and needed lift to the global economy. Given China's large size and the projected rebound, China will contribute considerably to global growth.

In addition to directly contributing to global growth, China generates spillovers to other economies. When China grows faster it imports more from other countries. This benefits China's trading partners. We estimate 1 percentage point more growth in China fuels 0.3 percentage points of growth elsewhere. This was the average impact, countries that have closer trade links to China would benefit more.

This illustrates how strong growth in China over the medium term is good both for China and the world economy.

Q: China has resumed outbound group tour operations as of February 6. When do you think China's outbound travel will rebound and exceed the levels seen before the pandemic? 

Barnett: This relates to the question above on China's growth spillovers. Increased tourism from China is one way that the recovery in China can benefit other economies, especially those with large tourism sectors. A Chinese tourist spending money on a vacation to Thailand is recorded as a tourism services import in China (and export in Thailand). 

Outbound tourism was sharply curtailed during the pandemic. Thus, a resumption of tourism could provide a welcome lift to other economies. To provide some numbers: in 2019, outbound tourism—which also includes overseas education spending — was US$255 billion. It dropped substantially in 2021 to US$105 billion. So, a return to the 2019 levels would mean a boost of around US$150 billion in outbound tourism from China. 

By Liu Yang