Innovation, productivity key to growth

China's innovation-driven transformation and rising productivity will play an important role in sustaining the country's medium-term growth and strong contribution to the global economy over the next five years, said a senior official at the International Monetary Fund.

Nevertheless, such an outlook for the 15th Five-Year Plan period (2026-30) can be achieved only if the main challenge of weak domestic demand is addressed, said Thomas Helbling, deputy director of the IMF's Asia and Pacific Department, emphasizing the need for a continued expansion in fiscal policy and deeper structural reforms.

"(In the coming five years), China will remain an important driver of global growth, currently contributing around 30 percent of global economic growth," Helbling told China Daily in an exclusive interview.

While China faces challenges such as slowing productivity growth and demographic pressures, these trends are not unique to China and are not expected to change its key role in supporting global growth, Helbling said on the sidelines of the 2025 Bund Summit in Shanghai.

Helbling emphasized that "innovation and productivity should and will be important drivers of growth", calling for structural reforms to create a more level playing field so that the private sector can play a stronger role in innovation, scale back industrial policies in favor of specific industries and accelerate the rebalancing toward consumption and services.

Sharing similar views, Takehiko Nakao, former president of the Asian Development Bank, said that China still has considerable room to grow during the next five years, supported by its strong technological progress, industrial upgrading and entrepreneurial dynamism.

Looking at near-term growth prospects, Helbling said several supportive factors have helped China's economic growth outperform expectations this year, including robust export growth amid front-loading to the US market, firm exports to Asian and European markets, and solid fiscal stimulus, including debt-swap programs that have eased local fiscal pressures.

In the IMF's Regional Economic Outlook for Asia and Pacific report released in late October, the fund predicts that China's economic growth would be 4.8 percent in 2025, up by 0.8 percentage point from its prediction in April.

Helbling said that the IMF expects China's inflation, as represented by consumer price index growth, to gradually recover to around 0.7 percent in 2026 as demand slowly improves and unfavorable base effects regarding food prices fade.

However, the risk of deflationary pressure persists as property sector problems and lingering local debt strains weigh on domestic demand, Helbling said, recommending that China continue an expansion in fiscal stance in 2026.

He stressed the need to focus more fiscal resources on consumption — such as targeted rural transfers, pensions and broader social safety nets — to reduce households' precautionary savings, which would strengthen consumption as a major growth driver, being one of China's key objectives for the coming five years.

Addressing the "anti-involution "policy initiatives aimed at easing excessive competition and capacity in some industries, Helbling said excessive competition will ultimately resolve itself through bankruptcies or firms failing. "That's a difficult process, but it's important to let it play out."

Speaking on the Asia-Pacific region, Helbling said the region's economic activity "has held up much better than initially feared "early this year, yet cautioned that lingering uncertainties over trade policy and global financial conditions pose downside risks. "Escalation of trade tensions remains a major concern for the region, which is highly open and exposed to global trade."

In the October regional economic outlook report, the IMF said that Asia's economic growth is projected at about 4.5 percent in 2025, before moderating to 4.1 percent next year as tariff effects begin to build.

Helbling also highlighted the expanding role of the renminbi in regional trade and financing. The currency's broader use in trade settlement and trade-credit arrangements "has contributed to regional resilience", he said.

"For the greater internationalization of the renminbi, China would need to further open its financial markets and allow easier access for foreign participants to invest in liquid renminbi assets that could serve as reserves for central banks," Helbling said. "That would be the next step. China has had this ambition, but actual progress has been modest over the past decade."

Contact the writers at zhoulanxv@chinadaily.com.cn