washington — The International Monetary Fund says China’s economic decline is likely to continue over the next four years as the world’s second largest economy deals with a range of challenges from a rapidly aging population, higher unemployment and a property crisis.

In a report released on Friday, the global financial policy body – also known as the IMF – projected China’s economic growth would drop to 4.6% this year, down from its 5.2% growth in 2023, and fall further to 3.4% by 2028.

The property market, which has historically represented about a quarter of China’s GDP, has been a particular area of trouble for the Chinese economy lately, with a Hong Kong court on Monday ordering Chinese property giant China Evergrande, mired in more than $300 billion of debt, to liquidate.

An IMF analysis released Friday predicted real estate investment is likely to fall 30% to 60% in the next ten years relative to 2022 levels.

“Absent a comprehensive restructuring policy package for the troubled property sector, real estate investment could drop more than expected, and for longer, with negative implications for domestic growth and trading partners,” the IMF report read.

However, Zhang Zhengxin, the IMF’s executive director for China, disagreed with the fund’s findings in a January 10 statement included in the report.

“The Report warns of the risks in China’s real estate market, but staff’s estimate is, to some extent, too pessimistic,” Zhang wrote. “Since August 2023, the real estate market transactions have experienced general improvement, which has gradually strengthened market confidence.”

The real estate crisis is closely linked to Chinese consumers’ spending habits, according to Christopher Tang, Senior Associate Dean of Global Initiatives at the University of California Los Angeles Anderson School and Faculty Director of the UCLA Center for Global Management.

“As they see their equity in their home investment declining, they spend less on everything – lower consumer spending, the demand falls which reduces production and hence slower economic growth,” Tang told VOA in an emailed response. “There is a domino effect when the real estate market is so huge and intertwined with decades of aggressive housing development and easy lending from banks.”

Ali Wyne, the senior research and advocacy adviser for U.S.-China at the think tank International Crisis Group, said local government debt and tensions between China and Western democracies also factor into predictions of an economic downturn.

“The evidence thus far does not suggest that a hard landing is in the offing, but it does suggest that China’s growth headwinds are more intractable than they were a decade ago or even at the outset of the 2020s,” Wyne told VOA in an email.

The IMF recommended that the Chinese government encourage its citizens to find new means of investment and pursue market-oriented reforms, among other means, to boost the country’s economy, according to the report.

Tang said China needs to promote new demand-side economic policies and loosen market regulations.

“China needs to promote a freer market to support market competition that can stimulate jobs through entrepreneurship and new startups and reduce its focus on state-owned enterprises that lack incentive to innovate and to compete,” Tang wrote.

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