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IMF cautions against moving manufacturing out of China

A slowdown in China doesn't bode well for the region

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Observing that China has been a very important player in global supply chains, a top International Monetary Fund (IMF) official on Tuesday said that anything which undermines this process of efficiency and productivity will have its costs.

At the end of the day, we have to think in terms of efficiency, gain and losses. China has been a very important player in global supply chains, and for good reasons, Krishna Srinivasan, IMF Director of the Asia and Pacific Department, told PTI in an interview.

Srinivasan was responding to a question on the move by companies in the US and Europe to shift their manufacturing base to other countries of the world.

Anytime you go for something driven by non-economic considerations, say sourcing goods from a friend-country (friend-shoring) you risk undermining efficiency. So, one has to think of this in a very objective way, Srinivasan said.

At the end of the day, what do you want from this? he said.

We have seen trade being an engine of growth not just in Asia, but all over the world. Just think about, how many people have come out of poverty, and how many jobs have been generated because of trade. So, anything which kind of undermines that gain, has to be looked at carefully, Srinivasan said.

But I must say that, even though trade has been a big engine of growth, there have been some people who have been left behind. So an important area for public policy is how do we make sure that everybody wins and people who are hurting from a certain action of trade are actually taken care of? he said.

That's where public policy has failed. We talk about efficiency gains, but there are people who may lose from free trade, how do we compensate them? How do we make sure they are also brought along? Anything which undermines this process of efficiency and productivity and so on will have costs and that has to be seen in the broader context of the geopolitics, said the IMF official.

According to Srinivasan, the zero COVID-19 strategy has negatively impacted the Chinese economy. The tradeoff between health outcomes and economic outcomes is becoming significant. So, China has to find a safe exit from zero COVID so that economic activity can gain momentum, he said.

China has been the powerhouse in Asia. A slowdown in China doesn't bode well for the region, it doesn't bode well for the global economy. So, China has to find a way to a safe exit from this policy, he argued.

Srinivasan suggested an acceleration of vaccination including for the elderly population, an area in which China has not done very well.

The other issue is the real estate sector. The real estate sector plays a very important role in China. That sector has been in distress for some time. What you need is a cogent, comprehensive strategy which can address problems in the real estate sector and revive confidence. Right now, people are hurting and some have stopped mortgage payments and so on. I think that confidence in the sector has to come back, he said. 

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