IMF Calls on China to Shift to Consumer Economy
The IMF struck a cautiously optimistic tone on China's near-term performance while sounding alarms over structural vulnerabilities threatening its long-term trajectory.
"China's economy has proved resilient in the face of multiple shocks, boosted by robust exports and fiscal stimulus, and it remains a major driver of global growth. The economy expanded by 5% in 2025, and we project 4.5% growth this year, up 0.3 percentage points from our October forecast," the fund said in a statement.
Despite that momentum, the IMF warned that the world's second-largest economy faces deepening imbalances. A prolonged property sector slump and an underdeveloped social safety net have eroded consumer confidence, keeping household spending persistently weak. Meanwhile, inflation running well below that of trading partners has cheapened the real exchange rate, supercharging exports and inflating the current account surplus to an estimated 3.3% of gross domestic product.
Looking further ahead, the picture darkens. Deflationary pressures are expected to linger, and medium-term growth faces a triple drag: a shrinking labor force, diminishing returns on investment, and slowing productivity gains.
Fiscal and Social Overhaul
To engineer a sustainable rebalancing, the IMF prescribed a sweeping policy package combining robust fiscal stimulus, additional monetary easing, and greater exchange rate flexibility. Critically, it urged Beijing to redirect public spending away from infrastructure-heavy investment and targeted industrial subsidies toward social protection and property sector stabilization — including relief for buyers of stalled, unfinished housing projects.
Expanding healthcare coverage, pension systems, unemployment insurance, and broader social assistance would shore up household finances and unlock consumer spending, the fund argued. Reforms to the hukou household registration system — which currently limits migrants' access to urban public services — could further lift consumption by integrating a vast, underserved segment of the population into the formal economy.
The IMF also called for a more progressive tax structure, shifting burdens from labor onto capital to narrow inequality and raise disposable incomes among lower-earning households.
"Taken together, the IMF's policy recommendations would significantly rebalance the economy toward consumption. They could boost the consumption-to-GDP ratio by about 4 percentage points over five years," it added.
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