China’s widening trade surpluses and soft home demand are now front and center in the IMF’s latest warning. The message landed after a ten‑day Article IV mission to Beijing and Shanghai from December 1 to 10.
The team was led by Sonali Jain‑Chandra and met top officials, central bankers, business leaders, and academics to go over growth, risks, and policy direction. The visit ended with one clear line. China’s economy is holding up, but the engine is still running the wrong way.
Kristalina Georgieva joined the talks and met Premier Li Qiang, Vice Premier He Lifeng, central bank chief Pan Gongsheng, finance minister Lan Fo’an, and commerce minister Wang Wentao.
First Deputy Managing Director Dan Katz also took part. The IMF said growth now stands at 5.0% for 2025 and 4.5% for 2026. Both numbers were raised from October by 0.2 and 0.3 points. The reasons were new policy moves and lower US–China tariffs. Inflation stays weak. It is seen at 0% in 2025 and 0.8% in 2026.
Weak demand drags while exports swell
At the end of the mission, Sonali laid out the risks in blunt terms. She said, “China’s economy has shown notable resilience despite facing multiple shocks in recent years.” Then she added the pressure points.
Property is still in a long reset. Local governments took hits to their balance sheets. Consumers stayed cautious. The result showed up in weak domestic demand and deflation stress.
Low inflation against trading partners pushed the real exchange rate lower. That lifted exports. It also stretched external gaps wider. The IMF now sees the current account surplus hitting 3.3% of GDP in 2025. Sonali warned that China’s size and rising trade tension make export dependence risky. “Reliance on exports is less viable for sustaining robust growth,” she said.
She also listed deeper limits on growth. Productivity gains are slowing. The population is aging. Debt levels are high. Returns on new investment are falling. These forces pull down the medium‑term track even if near‑term growth holds steady.
Officials told the IMF they aim to lift consumption. They already rolled out expansionary fiscal plans and policy easing. They added targeted steps for households and for property. They also moved against “involution,” the intense price cutting that hurts profits in some sectors. The retirement age was raised to support the labor supply. Local government debt swaps are now under way to ease funding stress.
IMF pushes for forceful shift toward consumers
The IMF said the core goal for China must now shift to consumer‑led growth. Sonali said a stronger and faster policy mix is needed.
“The key policy priority is to transition to a consumption‑led growth model, away from an overreliance on exports and investment,” she said. The Fund wants this done without shaking financial stability or adding new debt risks.
The first step targets macro imbalances. The IMF called for larger fiscal stimulus backed by easier money and more flexible exchange rates. The goal is to lift demand at home and lift prices off the floor.
The Fund also wants stronger social protection to cut the need for precaution savings. Property support must continue while excess industrial support and wasteful projects get cut. The IMF said this mix would also lift the real exchange rate and narrow trade gaps.
The second track focuses on debt. The Fund wants fiscal and financial rule changes and full balance‑sheet cleanup. Local financing vehicles that cannot survive should go through formal insolvency paths.
This must come with a plan to limit spillovers across banks and public finances. The IMF added that government debt will need steady fiscal tightening once deflation pressure fades.
The third track is about growth capacity. The IMF flagged barriers inside China’s own market. These include limits on services, uneven rules for firms, and labor gaps. Priorities include opening services, equal treatment across companies, fixing skill gaps, and dealing with youth joblessness.
The IMF said that progress on these three fronts could add about 2.5 percentage points to GDP by 2030 and cut external gaps.
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