ChinaEconomy – IMF Calls for Stronger Domestic Demand Reforms
ChinaEconomy – The International Monetary Fund has advised China to take firmer action to strengthen household consumption and address structural imbalances, cautioning that subdued spending and persistent price pressures could weigh on both national and global growth.
IMF Concludes Annual Economic Review
Following the completion of its 2025 Article IV consultation with Chinese authorities on February 13, the IMF Executive Board observed that the country’s economy has demonstrated notable resilience despite facing a series of external and domestic challenges in recent years.
China recorded economic growth of 5 percent in 2025. According to the Fund, this expansion was largely driven by strong export performance and government-led policy support. However, it noted that domestic private demand has yet to regain full momentum, raising concerns about the sustainability of current growth patterns.
Inflation Remains Subdued
Price trends remained weak throughout the year. Average headline inflation hovered around zero percent in 2025, while the GDP deflator continued to decline. The IMF highlighted that soft price conditions reflect lingering economic slack and limited consumer spending, conditions that may hinder broader recovery efforts if left unaddressed.
Looking ahead, the Fund expects growth to moderate. It projects that China’s GDP expansion could ease to 4.5 percent in 2026, citing the extended impact of tariffs and ongoing uncertainty surrounding global trade policies. Inflation, meanwhile, is anticipated to pick up only gradually.
Downside Risks Persist
The IMF warned that economic risks remain tilted to the downside. A sharper-than-expected downturn in the property market could further dampen domestic demand, deepen deflationary pressures, and reinforce reliance on export-led growth. The possibility of renewed trade tensions was identified as the most significant external threat.
China’s property sector, which has experienced prolonged strain, continues to pose systemic risks. The Fund recommended stronger central government involvement, particularly in financing the completion of pre-sold housing projects that remain unfinished. Addressing these concerns, it said, would help restore confidence among households and stabilize the broader real estate market.
Shifting Toward Consumption-Led Growth
IMF directors emphasized that transitioning to a consumption-driven growth model should remain a central objective for policymakers. They acknowledged Beijing’s commitment to boosting household spending under its 15th Five-Year Plan but called for a more comprehensive strategy that pairs fiscal and monetary support with structural reforms.
The Fund welcomed the fiscal expansion undertaken in 2025 and advised maintaining an accommodative stance until deflationary pressures ease in a sustained manner. It suggested reallocating public spending toward measures that directly support consumers and stabilize the property market, while scaling back less efficient investment initiatives.
Monetary policy adjustments, including further easing and enhanced exchange rate flexibility, were also recommended as part of a balanced policy mix.
Reforming Industrial and Fiscal Frameworks
Beyond short-term stimulus, the IMF urged authorities to reassess industrial policies that may lead to inefficient allocation of resources and increased fiscal burdens. Reducing such distortions, it said, would not only improve domestic productivity but also help limit unintended spillover effects on global markets.
On trade matters, the Fund recognized China’s significant role in maintaining open global commerce amid rising fragmentation pressures. It encouraged policymakers to engage constructively with trading partners to resolve disputes and to apply national security measures carefully when restricting trade or investment flows.
In the longer term, ensuring debt sustainability will require meaningful fiscal consolidation. However, the IMF stressed that such tightening should begin only after the economy has firmly returned to stable price growth. Reforming local government financing vehicles and strengthening fiscal governance were identified as critical steps in this process.
As the world’s second-largest economy and a key participant in global trade networks, China’s policy decisions carry broad implications. With property market strains and local government debt still under scrutiny, the direction of future reforms will remain closely watched by investors and policymakers worldwide.