People’s Republic of China: Staff Report for the 2014 Article IV Consultation—Informational Annex
Author:
International Monetary Fund. Asia and Pacific Dept
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Publication Date:
30 Jul 2014
eISBN:
9781498308571
Language:
English
Keywords:
ISCR; CR; IMF staff calculation; slowing food price increase; authority; housing investment growth; Consumer price inflation; balance of payments; monetary policy; trading band; RMB clearing banks; foreign currency; Monetary statistics; Government finance statistics; Global; RMB proceeds
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KEY ISSUESContext. After three decades of remarkable growth, the economy has been slowing. Much of theslowdown has been structural, reflecting the natural convergence process and waning dividends from past reforms; weak global growth has also contributed. Moreover, since the global financial crisis, growth has relied too much on investment and credit, which is not sustainable and has created rising vulnerabilities. Growth was 7.7 percent in 2013, and is expected to slow to around 7½ percent this year and decline further over the medium term.Focus. The pattern of growth since the global financial crisis is not sustainable and has resulted in rising vulnerabilities. The discussions focused on assessing the risks posed by the continuedbuild-up of vulnerabilities; reforms to unleash new, sustainable engines of growth and reduce vulnerabilities; and how to best manage aggregate demand in this context, as growth is slowing yet risks are still rising. A key takeaway is that to secure a safer development path, accommodative policies need to be carefully unwound, accompanied by decisive implementation of the announced reform agenda to promote rebalancing. The result will be somewhat slower but safer growth in the near term, with the significant long-run benefit of securing more inclusive, environment-friendly, and sustainable growth.Risks. Credit and ‘shadow banking,’ local government finances, and the corporate sector— particularly real estate—are the key, and interlinked, areas of rising vulnerability. In the near term, the risk of a hard landing is still considered low as the government has the capacity to combat potential shocks. However, without a change in the pattern of growth, the hard-landing risk continues to rise and is assessed to be medium-likely over the medium term.Reform agenda. The authorities have announced a comprehensive and ambitious blueprint of reforms. Successful implementation should achieve the desired transformation of the economy, but will also be challenging.Demand management. Reining in credit growth, local government borrowing, and investment will address the risks, but also slow growth. Macro support should be calibrated to allow needed adjustments to take place, while preventing growth from slowing too much.Scenarios and spillovers. With faster adjustment and reform implementation, growth will be somewhat lower in the near term, with moderate spillovers for trading partners. However, in the medium term, income and consumption will both be higher—a result that is good for China and good for the global economy.

Abstract

KEY ISSUESContext. After three decades of remarkable growth, the economy has been slowing. Much of theslowdown has been structural, reflecting the natural convergence process and waning dividends from past reforms; weak global growth has also contributed. Moreover, since the global financial crisis, growth has relied too much on investment and credit, which is not sustainable and has created rising vulnerabilities. Growth was 7.7 percent in 2013, and is expected to slow to around 7½ percent this year and decline further over the medium term.Focus. The pattern of growth since the global financial crisis is not sustainable and has resulted in rising vulnerabilities. The discussions focused on assessing the risks posed by the continuedbuild-up of vulnerabilities; reforms to unleash new, sustainable engines of growth and reduce vulnerabilities; and how to best manage aggregate demand in this context, as growth is slowing yet risks are still rising. A key takeaway is that to secure a safer development path, accommodative policies need to be carefully unwound, accompanied by decisive implementation of the announced reform agenda to promote rebalancing. The result will be somewhat slower but safer growth in the near term, with the significant long-run benefit of securing more inclusive, environment-friendly, and sustainable growth.Risks. Credit and ‘shadow banking,’ local government finances, and the corporate sector— particularly real estate—are the key, and interlinked, areas of rising vulnerability. In the near term, the risk of a hard landing is still considered low as the government has the capacity to combat potential shocks. However, without a change in the pattern of growth, the hard-landing risk continues to rise and is assessed to be medium-likely over the medium term.Reform agenda. The authorities have announced a comprehensive and ambitious blueprint of reforms. Successful implementation should achieve the desired transformation of the economy, but will also be challenging.Demand management. Reining in credit growth, local government borrowing, and investment will address the risks, but also slow growth. Macro support should be calibrated to allow needed adjustments to take place, while preventing growth from slowing too much.Scenarios and spillovers. With faster adjustment and reform implementation, growth will be somewhat lower in the near term, with moderate spillovers for trading partners. However, in the medium term, income and consumption will both be higher—a result that is good for China and good for the global economy.

Fund Relations

(As of May 31, 2014)

Membership Status: Joined 12/27/45; Article VIII (December 1, 1996)

General Resources Account:

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SDR Department:

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Outstanding Purchases and Loans: None

Financial Arrangements:

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Projected Payments to Fund (SDR million; based on existing use of resources and present holdings of SDRs):

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Exchange Arrangements:

China’s exchange rate regime has been classified as a crawl-like arrangement since June 21, 2010. De jure classification of the exchange rate is managed floating. On July 21, 2005, the People’s Bank of China (PBC) announced that the exchange rate of the renminbi against the U.S. dollar would be revalued upward by about 2.1 percent (from RMB 8.28/US$ to RMB 8.11/US$) and the exchange rate regime would move to a managed float in which renminbi’s value is set with reference to a basket of currencies. The stated intention of the Chinese authorities was to increase the flexibility of the renminbi’s exchange rate. The authorities indicated that they will not publish the currencies in the reference basket and their relative weight. The PBC indicated that it would adjust the exchange rate trading band as necessary to reflect market developments and financial and economic conditions. Under the new regime, the band around the daily trading price of the U.S. dollar against the renminbi was kept at ± 0.3 percent around the central parity published by the PBC while the trade prices of the non-U.S. dollar currencies against the renminbi were allowed to move within a certain band announced by PBC, which was initially set at ±1.5 percent and increased to ±3 percent in September 2005. In August 2005, the governor of PBC revealed that U.S. dollar, Euro, Japanese yen, and Korean won were the main currencies included in the basket; and U.K. pound, the Thai baht, and the Russian ruble were among other currencies included in the basket. In May 2007, the band around the daily trading price of the U.S. dollar against the renminbi was widened to ± 0.5 percent. After maintaining the renminbi closely linked to the U.S. dollar between July 2008 and June 2010, the PBC announced on June 19, 2010 a return to the managed floating exchange rate regime prevailing prior the global financial crisis with the exchange rate allowed to move up to +0.5 percent from a central parity rate to enhance the effectiveness of monetary policy. Further, on April 14, 2012, the PBC announced a widening of the renminbi’s trading band against the U.S. dollar in the interbank foreign exchange market. As of today, the band has been widened to 2 percent, allowing daily fluctuations relative to the central parity rate. The trading prices for the renminbi against the euro, yen, Hong Kong dollar, and pound sterling on the one hand and against the ringgit and the ruble on the other hand float within a 3 percent and a 5 percent range of the day’s middle exchange rates of the renminbi against these currencies, respectively.

On January 4, 2006, over-the-counter (OTC) trading of spot foreign exchange was introduced with 15 banks initially designated as market makers. The number of market makers has since risen to 31 with all the banks approved as spot market makers, and 27 approved as forward and swap trading market makers. The centralized spot foreign exchange trading system (CFETS) remains operative, but its central parity rate (renminbi against the U.S. dollar) is now based on a weighted average of CFETS and OTC transactions. Under the new system, CFETS first inquires prices from all market makers before the opening of the market on each business day, exclude the highest and lowest offers, and then calculates the weighted average of the remaining prices in the sample as the central parity for the renminbi against the U.S. dollar for the day. The weights for the market makers, which remain undisclosed, are determined by the CFETS using various factors, including the transaction volumes of the respective market makers in the market. The method for determining is as follows: The CFETS determines the middle rate for the renminbi against the ringgit, yen, and the ruble similarly. The middle exchange rates of the renminbi against the euro and Hong Kong dollar, and pound sterling, respectively, are determined through cross rates by the CFETS based on the day’s foreign exchange middle rate for the renminbi against the U.S. dollar and the exchange rates for the U.S. dollar against the euro, yen, Hong Kong dollar, and pound sterling on international foreign exchange markets.

China accepted the obligations of Article VIII, Sections 2, 3, and 4 of the Fund’s Articles of Agreement on December 1, 1996. There are repatriation requirements on proceeds from exports and from invisible transactions and current transfers. Starting on August 13, 2007, all enterprises (domestic institutions) having foreign exchange revenue from current operations may keep foreign exchange receipts according to their operational needs in their current foreign exchange accounts. With SAFE approval or registration, domestic institutions may open foreign exchange capital accounts and retain foreign exchange revenues from capital transactions. Domestic institutions that had no current foreign exchange revenue may purchase foreign exchange for imports in advance based on documentary proof of the payment and deposit the funds into their foreign exchange accounts. Individuals may, also open foreign exchange savings accounts and deposit foreign exchange purchased in accordance with the relevant regulations. There are no measures currently in force that have been determined to be exchange restrictions subject to Fund jurisdiction. However, China has notified measures to the Fund, pursuant to procedures under the Executive Board Decision 144-(52/51), which apply to measures imposed solely for national or international security reasons.

Exchange controls continue to apply to most capital transactions. Effective on July 1, 2006, quotas on foreign exchange purchases for foreign direct investment (FDI) were abolished, and domestic investors were allowed to purchase foreign exchange to finance pre-FDI activities. Since December 1, 2002, qualified foreign institutional investors (QFIIs) have been allowed to invest domestically in A shares, subject to certain restrictions, and all nonresidents have been allowed to purchase B shares, which are denominated in U.S. dollars or Hong Kong dollars. The overall investment limit for QFIIs was US$80 billion in 2012. As of the end of 2012, a cumulative total of 207 QFIIs had been approved, with a total investment limit of US$37.443 billion. The Qualified Domestic Institutional Investor (QDII) scheme was introduced in 2004, and measures have since been taken to promote its development. Since May 1, 2006, residents can freely purchase up to US$20,000 foreign exchange and this limit was raised to US$50,000 in September 2006. Above this amount, purchases require relevant documents. In May 2007, the QDII scheme was expanded to allow qualified banks to invest retail funds in foreign equities. Effective July 5, 2007 the China Securities and Regulatory Commission extended QDII to securities and fund-management companies. The firms have to meet certain capital and other requirements. From April 2006, qualified insurance companies were also allowed to invest their own foreign exchange externally under the QDII scheme up to 15 percent of their total assets. QDIIs may also invest in foreign derivative instruments.

The use of renminbi in international transactions has been expanded. In 2010, international financial institutions were approved to raise funds domestically in renminbi for use offshore. Since August 2011, trade transactions between all provinces and cities in the Mainland with other countries may be settled in renminbi. Since August 17, 2010, eligible foreign institutions may invest in the interbank bond market in renminbi. The eligible institutions include foreign banks engaged in cross-border trade settlements in renminbi, the Hong Kong SAR and Macao SAR region renminbi clearing banks, and foreign central banks and monetary authorities. These investments are subject to limits, but there is no minimum holding period. Starting from January 6, 2011, resident enterprises in 20 provinces and cities in the Mainland may use renminbi for outward FDI in those countries which accept such settlement. In December 2011, a new pilot scheme was announced to allow up to RMB20 billion in portfolio flows into the securities markets (through a renminbi Qualified Foreign Institutional Investor scheme), and in October, rules were published to allow overseas firms to invest renminbi raised offshore in the Mainland as foreign direct investment. Since 2012 all residents and non-residents can use RMB for FDI. Under the expanded RMB qualified foreign institutional investors (RQFII) scheme, Hong Kong subsidiaries of Chinese financial institutions, as well as financial institutions registered and operated in Hong Kong SAR, may invest in domestic securities markets using RMB proceeds raised overseas. Hong Kong-based banks may provide yuan loans to companies based in the Qianhai District of Shenzhen, with limits on the size of the loan. RMB internationalization has advanced further in 2013-14. RMB clearing banks were established in Singapore, Taiwan Province of China, Luxembourg, Australia, and the UK. Germany is also expected to establish RMB clearing banks soon. Average daily RMB turnover in Hong Kong SAR was about USD 50 billion in 2013, one of the highest among emerging market currencies.

External borrowing remains subject to permission by the respective authority except for FFEs which may borrow abroad within the difference between the enterprise’s total investment and registered capital. Lending abroad generally requires approval, but domestic associated enterprises of multinational corporations may directly lend to offshore associated enterprises.

Article IV Consultation:

China is on the standard 12-month consultation cycle. The 2013 Article IV mission was concluded on May 29, 2013 and the staff report was published on July 17, 2013.

Technical Assistance:

Technical assistance provided from 2000 through May 2014 is summarized in Annex V.

Resident Representative:

The resident representative office in Beijing was opened in October 1991. Mr. Alfred Schipke is the Senior Resident Representative and Mr. Waikei Raphael Lam is the Deputy Resident Representative.

World Bank-IMF Collaboration

(As of June 18, 2014)

1. The IMF China Resident Representatives (Messrs. Schipke and Syed) held discussions with the World Bank team (Ms. Goh, lead Economist for China, and Mr. Smits) in June 2014 to exchange views on key areas of reform to ensure sustainable medium-term growth in China, minimize risks, and improve the inclusiveness of growth. The teams discussed their agendas for 2014-15. The last such meeting was held during May 2013 in Beijing.

2. The teams agreed the focus of reform in China should be on shifting growth to a more balanced and sustainable path, along the line of the Third Plenum reform blueprint. Reforms should aim at preventing further buildup of risks stemming from rapid credit growth and quasi-fiscal spending, and move the economy to a more inclusive, environment-friendly, and sustainable growth path. Giving the market a more decisive role, eliminating distortions, and strengthening institutions will result in a more efficient use of resources, faster productivity growth, and rising living standards across the income spectrum.

3. Based on this assessment, teams identified the following reform areas as macro-critical:

  • Financial sector reforms. Further progress in financial sector reform is central to containing risks and boosting growth by facilitating better allocation of resources. Widespread implicit guarantees—of savers, intermediaries, and borrowers—and the cap on deposit rates distort the pricing of risk and borrowing costs, resulting in misallocation of credit and inefficient investment. Key measures in this area include deposit interest rate liberalization, stepped-up supervision and regulation of the financial system, overhaul of the system of resolving failed financial institutions, and the introduction of deposit insurance.

  • Fiscal reforms. Off-budget spending, in infrastructure but also in other areas, undertaken by local-government owned entities have led to a significant buildup of debt. Bringing these projects on-budget and strengthening control over public financial management will help control fiscal risks. Improving the fiscal framework is a priority for the medium term, including strengthening budget processes, data transparency, local government finances, and medium-term budget planning. Tax reforms—many of them planned and some already partly in place or in pilot form—will promote more efficient and inclusive growth. These reforms include extending the VAT to services, improving the progressivity of the personal income tax, and implementing a property tax.

  • Reform of social safety nets. Further strengthening the pension and health insurance systems—including by improving and expanding coverage—would have macro-benefits such as reducing precautionary household savings. Addressing coverage issues in the Chinese health system would further reduce incentives to save, and help develop China’s service sector. These reforms should be done in a way that ensures the sustainability of the social security system, including through parametric changes to the pension system and transferring the welfare and legacy components to the budget.

  • SOE reform. Reforms include opening up to full and fair competition activities currently reserved to SOEs, properly pricing finance and other factor inputs, requiring adequate dividend payments to the budget, and imposing hard budget constraints. Opening up the service sector to more competition will also be critical for generating the productivity gains necessary to fuel growth and for boosting household income, as services tend to be more labor intensive than industry.

  • Green growth. Air pollution, water quality and supply, and issues such as desertification, dependence on coal, and degradation of grasslands have social, health, and economic effects. Underpricing of energy and inadequate consequences for pollution have worsened these effects while contributing to China’s dependence on industry. Raising these factor costs to capture the cost of externalities and investing in renewable energy will make growth more sustainable and inclusive.

  • Infrastructure. Investment in infrastructure has been a key driver of the Chinese economy, particularly during the slowdown around the Global Financial Crisis. However, the rapid pace of investment has in some cases left communities behind, and in other cases has led to excessive investment in projects with relatively low social or financial returns. Filling in the gaps of investment in social projects will make growth more inclusive while improving the overall social and financial efficiency of infrastructure investment. Measures to improve the process of approving new infrastructure projects will ensure that investments are focused in areas of the highest social return.

4. The teams agreed to the following division of labor.

  • Financial sector reforms. The Bank is working with the authorities on the development of a financial sector reform strategy. The Fund will continue to follow up on the recommendations of the 2011 FSAP and provide technical assistance to the Chinese authorities as needed.

  • Fiscal reforms. The Bank will continue its work with the Shanghai municipal government to transfer technical assistance on Medium Term Expenditure Framework and debt sustainability analyses. The Bank will also continue its work on expenditure and revenue policies and on fiscal management in the context of its urbanization study, completed earlier in 2014. The Fund will continue its technical cooperation on strengthening the fiscal framework and streamlining budgetary preparation. The Fund will also continue to discuss the near- and medium-term implications of China’s fiscal stance and policy choices on the broader economy as well as implications for global spillovers.

  • Social safety nets. The Bank will continue to work with the Chinese authorities on both parametric and structural reforms to the Chinese pension system, with a view toward ensuring that the system protects the most vulnerable, ensures a fair return on savings for all participants, and is financially sustainable in the long term. The Fund will look at issues related to the balance between social contributions and other revenue sources, as well as how social safety nets fit into the overall fiscal and macroeconomic policy framework.

  • Green growth. The Bank’s focus on climate change and renewable energy in China will continue to emphasize cutting-edge renewable energy technologies, scale-up of energy conservation and investments in energy efficiency, and green building policies (for heat and energy efficiency). Engagements with a climate change focus will extend to expansion of distribution of electricity from natural gas generation, analysis of carbon capture and storage potential, and development of carbon markets. The Fund will continue to discuss options to capture the cost of externalities through the use of fiscal policy such as better calibration of excise and other taxes. It is ready to provide assistance on shifting the pricing and taxation of energy, and discussing the growth and fiscal implications of such a shift.

5. Teams have the following requests for information from their counterparts:

  • The Fund team requests to be kept informed of progress in the above macroeconomic structural reform areas, as milestones are reached and at least on a semiannual basis.

  • The Bank team requests to be kept informed of the Fund’s assessments of macroeconomic policies and prospects in the context of the Article IV consultation and staff visits, and at least semiannually.

The following table lists the teams’ separate and joint work programs for June 2014–June 2015.

Relations with the Asian Development Bank1

1. The Asian Development Bank’s (AsDB) partnership with the People’s Republic of China (PRC) has grown in many ways since the PRC became a member of AsDB in March 1986. The PRC is AsDB’s second largest shareholder among regional members and the third largest overall, as well as an important middle-income country client. By the end of 2013, the PRC’s cumulative borrowing from AsDB reached $27.8 billion with 204 loans for public sector projects. Of the total public sector loans, 52.7 percent was allocated to the transport sector, followed by agriculture and natural resources (11.3 percent) and water and other municipal infrastructure services (11.3 percent), energy (11.0 percent), industry and trade (2.6 percent), finance (2.2 percent), and multisector (9.0 percent). Over the past 26 years, AsDB has helped finance 37 private sector projects in the PRC totaling $4.06 billion.

2. AsDB also funds Technical Assistance for the PRC. By the end of 2013, AsDB had provided a total of $419.1 million in grants for 727 technical assistance projects, consisting of $132.5 million for preparing projects and $286.6 million for policy advice and capacity development.

3. Overall, the PRC has demonstrated strong capabilities in implementing projects. The good performance shows the strong sense of project ownership among agencies involved in the design, implementation, and management of projects, as well as the rigorous screening process for development projects, particularly those proposed for external financing. Loan disbursement and contract award performance is good.

4. The PRC has demonstrated its strong partnership with AsDB by contributing to the Asian Development Fund, establishing the $20 million PRC Poverty Reduction and Regional Cooperation Fund (the PRC Fund), and replenishing another $20 million to the PRC Fund. The PRC Fund—the first fund established in AsDB by a developing member country—providing technical assistance projects to support subregional cooperation initiatives, particularly Central Asia Regional Economic Cooperation (CAREC) and Greater Mekong Subregion (GMS) programs.

5. The Asian Development Bank’s Country Partnership Strategy (CPS) 2011–15 was endorsed by AsDB Board of Directors in May 2012. The CPS 2011-2015 is aligned with the priorities of the PRC’s 12th Five-Year Plan 2011-15 that intersect with those of AsDB’s long-term Strategy 2020, particularly the redoubling of efforts to promote socially inclusive and environmentally sustainable development. The CPS reflects the PRC’s changing circumstances as a rapidly growing middle-income country with increasing emphasis on innovation and value addition and South-South cooperation to underpin the evolving AsDB-PRC partnership. The CPS is built on three strategic pillars: (i) inclusive growth, (ii) environmentally sustainable growth, and (iii) regional cooperation and integration. It identifies four priority sectors for country operations during the CPS period: (i) energy, (ii) natural resources and agriculture, (iii) transport, and (iv) urban development. The sector selection reflects AsDB’s comparative strengths and expertise through its longstanding operations in these sectors.

6. Projected public sector lending in 2014-2016 will total about $4.13 billion, of which 32 percent will support the transport sector; 27 percent for agriculture, rural development, and natural resource management; 30 percent for urban development, water supply, and sanitation improvement; and 11 percent for the energy sector. Over 90 percent of the projects are located in the western, central and north-eastern regions in line with the CPS’s priorities of promoting inclusive growth and environmentally sustainable growth.

AsDB’s technical assistance will complement the lending program to improve the sector policy environment, support governance and capacity development, and strengthen the knowledge base and innovative features of lending operations.

China: AsDB’s Commitments and Disbursements (Public Sector Loans), 1993-2013

(In millions of U.S. dollars)

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Refers to cumulative contract awards.

Refers to disbursements for the year.

Statistical Issues

Assessment of Data Adequacy for Surveillance

1. Data provision has some shortcomings, but is broadly adequate for surveillance. Most affected areas are: national accounts and government finance statistics. Progress has been made in meeting the SDDS standard, as most of data requirements are observed although several data categories are compiled but not disseminated in accordance to the SDDS standard (for instance, the GDP is compiled on a cumulative and not a discrete basis). Some planned improvements include strengthening the data dissemination by the National Bureau of Statistics (NBS), and revising the reporting codes and classification of BOP transactions to Balance of Payments Manual 6 by the State Administration of Foreign Exchange (SAFE). For a fuller discussion planned improvements see (http://dsbb.imf.org/Pages/GDDS/SummaryReport.aspx?ctycode=CHN&catcode=s1)

Real Sector Statistics

2. The National Bureau of Statistics (NBS) compiles and disseminates annual GDP by activity in current and constant prices (2010) and quarterly estimates of GDP. Both the annual accounts and quarterly accounts are based on the System of National Accounts, 1993 (1993 SNA). The techniques for deriving volume measures of GDP are not sound and need to be improved. GDP by expenditure is compiled at current and constant prices, but the constant price estimates are not published. Data on the levels of expenditure components of real GDP are not available on a quarterly basis. Nevertheless, the NBS has made a number of improvements to the range and quality of national accounts data, the most important being improving the exhaustiveness of the GDP estimates by activity. Further improvements are intended for both the annual and quarterly accounts, however, no target dates have been set. As in other countries, rapid economic change, including the expansion of the private sector, presents new problems for data collection and compilation. The ability to change the data collection systems is restricted by the decentralized nature of the statistical system.

3. Monthly industrial production, retail sales, and fixed investment indices are compiled with the corresponding month of the previous year as a base period but, no chain-linked time series are produced. Data revisions tend to be made without publishing the entire revised series.

4. Labor market statistics—including employment and wage data—are not comprehensive, and are only available on a quarterly basis.

5. In January 2001, the NBS began to publish a Laspeyres price index that provides a time series for each January to December (with January each year = 100). This more accurately reflects consumer spending patterns (e.g., the weight of services increased, while the weight of food declined). The number of survey items has been expanded to at least 600 for small cities and counties and more for large and medium-size cities (e.g., 1800 for Beijing). The most recent weights of the major CPI components were provided to the staff in 2006.

Government Finance Statistics

6. Serious data shortcomings continue to hamper fiscal analysis. Budgetary data exclude spending associated with official external borrowing. Also, data on the social and extra budgetary funds are only provided annually and with a long lag. Expenditure classification remains poor, mainly because data are not classified by economic type. The authorities have indicated an intention to begin collecting these data and to develop accrual based measures of fiscal performance over the medium term while also strengthening the compilation of cash based GFS.

Monetary and Financial Statistics

7. In recent years, improvements have been made in monetary and financial statistics. However, the monetary and banking surveys lack sufficient detail with regard to bank claims on the government, hampering the estimation of the fiscal deficit from the financing side. The reported net foreign assets position of PBC does not include exchange rate valuation effects and interest earnings on foreign reserves. The PBC has also ceased to report separate data on central government deposits in its balance sheet since April 2005 because the MOF no longer distinguishes between central and other government deposit accounts. This change has led to breaks in data series of monetary base and monetary aggregates.

8. The April 2012 monetary and financial statistics mission made several recommendations for improvements in monetary data compilation, leading to the PBC’s implementation of the standardized report forms (SRFs). However, monetary data reporting in SRFs has not initiated by the authorities due to ongoing issues related to instrument and sectoral classifications.

9. The April 2012 monetary and financial statistics mission also discussed with the authorities the possibility of expanding the data scope of FSIs to include encouraged FSIs for deposit-takers. The authorities indicated that the work on the compilation of the encouraged FSI data is at an early stage and, furthermore, they are working on adopting the Basel III at this stage and agreed to consider the mission’s recommendations after the developmental work is completed for collecting data under the Basel III.

External Sector Statistics

10. The data are compiled (in U.S. dollars) largely in accordance with the fifth edition of the Balance of Payments Manual (BPM5). The authorities continue their efforts to improve the coverage of direct investment transactions in the balance of payments (BOP) and IIP statistics, and progress is being made in developing these statistics. Since the International Transactions Reporting System is the major data source for balance of payments (BOP) statistics, in order to ensure its smooth operation, regular training programs for staff in the provincial offices of SAFE have been recommended. In 2011, China commenced participation in the Coordinated Direct Investment Survey (CDIS).

11. Despite an ostensibly modest level of external vulnerability, there remains a need to strengthen external debt monitoring and compilation. In 2010, China started submitting total and public external debt data for the Quarterly External Debt Statistics (QEDS) database, a notable step forward.

Data Standards and Quality

12. China has participated in the General Data Dissemination System since April 2002, and the metadata posted on the Fund’s Dissemination Standards Bulletin Board (DSBB) are regularly updated.

Data Reporting to STA for Publications

13. Despite improvements in reporting a number of breaks remain in the series, and comparable historical data are not available. Reporting of data to STA for publication in the International Financial Statistics (IFS) has, in the past, tended to be sporadic and with a considerable time lag. Following the introduction of new reporting arrangements, the timeliness of consumer price, industrial production, trade value, and total GDP data in IFS have improved substantially. No long-term time series are available for the consumer and producer price indexes and industrial production; rather the comparison is made each period with the same period of the previous year. However, the range of information is relatively limited, with no data published on wages, trade volumes, or prices/unit values.

14. China has reported general government cash-based budget data for 2003-09 following the GFSM 2001 methodology for publication in the 2011 Government Finance Statistics Yearbook. However, these data are limited, with no data provided on government transactions in expense, assets, and liabilities. The revenue classification does not fully distinguish between revenue and grants, tax and nontax revenue, and current and capital revenue. The presentation of expenditure by function is largely aligned with international best practice.

15. Owing to source data issues, the authorities have not yet been able to report a GFSM 2001 Statement of Sources and Uses of Cash for the budgetary central government accounts on a subannual basis. As a result, there are no fiscal data for China on the Principal Global Indicators website.

16. For reporting monetary data to the Fund, the authorities have not begun using SRFs. Monetary data continue to be reported using the old format.

17. The FSIs data currently posted on IMF’s website are available only for core indicators and on an annual basis with data beginning from 2010. The April 2012 mission encouraged the authorities to compile and report the FSI data with quarterly periodicity. The authorities agreed with the improved periodicity for their FSI data, but indicated that they would prefer to move to semi-annual reporting prior to compiling the quarterly data.

18. The authorities have resumed reporting data on international reserves for publication in the IFS. However, the monthly time series are now submitted every three months, instead of every month. With regards to BOP and IIP data, the authorities started submitting quarterly data to STA for publication in the IFS and the Balance of Payments Statistics Yearbook (BOP data are available on a quarterly basis starting in 2010 and IIP starting in 2011). Additionally, China participates in the CDIS and data on inward investments are available for 2009 and 2010.

Data Dissemination to the Public

The publication of a quarterly statistical bulletin by the PBC has significantly improved the timing and coverage of publicly available data on the monetary accounts and the main real sector indicators. However, the monthly statistical publications do not contain many time series (e.g., unemployment) or the disaggregation necessary for analysis. Moreover, several important time series, particularly on the main fiscal variables, are not released in a systematic and timely manner. Extensive annual economic data are available in various statistical yearbooks, but these are published nine months or more after the end of the year. Nevertheless, in the case of BOP and quarterly external debt data disseminated in QEDS, time lag is around four to seven months.

China: Table of Common Indicators Required for Surveillance

(As of June 18, 2014)

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Any reserve assets that are pledged of otherwise encumbered should be specified separately. Also, data should comprise short-term liabilities linked to a foreign currency but settled by other means as well as the notional values of financial derivatives to pay and to receive foreign currency, including those linked to a foreign currency but settled by other means.

Both market based and officially determined, including discount rates, money market rates, rates on treasury bills, notes and bonds.

Only 12-month growth rates are reported (price indices are not available).

Data on financing (foreign, domestic bank, and domestic nonbank financing) is not available.

The general government consists of the central (budgetary funds, extra budgetary funds, and social security funds) and state and local governments.

Including currency and maturity composition.

Goods trade data are provided monthly. Services trade data are released with the current account statistics.

For real GDP, level data are available only on an annual basis (growth rates are available on a quarterly, cumulative basis).

Daily (D), Weekly (W), Monthly (M), Quarterly (Q), Annually (A); Irregular (I); Not Available (NA).

Interest rates change only infrequently; these changes are publicly announced.

Technical Assistance

China: Summary of Technical Assistance, 2001-15 1/

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The new Institute for Capacity Development (ICD) was formed from the merger of the former IMF Institute (INS) and Office of Technical Assistance Management (OTM) on May 1, 2012.

Appendix I. China: Bank and Fund Planned Activities in Macrocritical Structural Reform Areas

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1

Prepared by Asian Development Bank staff.

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Cover IMF Staff Country Reports
People’s Republic of China: Staff Report for the 2014 Article IV Consultation
Author:
International Monetary Fund. Asia and Pacific Dept
Volume/Issue:
Volume 2014: Issue 235
Publisher:
International Monetary Fund
ISBN:
9781498308571
ISSN:
1934-7685
Pages:
115
DOI:
https://doi.org/10.5089/9781498308571.002