The International Monetary Fund on Wednesday urged China to make the “brave choice” of speeding up structural reform, as pressure grows on the world’s second-largest economy to shift towards a consumption-led model and curb reliance on debt-driven exports.
“China is simply too big to generate much (more) growth from exports, and continuing to depend on export-led growth risks furthering global trade tensions,” IMF Managing Director Kristalina Georgieva told a press conference concluding the Fund’s regular review of the $19 trillion economy.
“It requires brave choices and determined policy action,” Georgieva added, while pressing Chinese policymakers to adopt a comprehensive macroeconomic policy package including additional fiscal stimulus and greater monetary easing, alongside targeted steps to rein in local government debt, resolve a protracted property crisis and improve social welfare provision.
COST OF ENDING PROPERTY CRISIS
Increased social spending and accelerating reform of China’s internal passport “Hukou” system, which has largely tethered people’s destinies to their place of origin since the 1950s, could boost consumption by up to 3 percentage points of GDP, she added.
Meanwhile, bringing an end to the property crisis within the next three years – which weighs heavy on domestic demand as some 70 per cent of Chinese household wealth is in real estate – will require China to spend 5 per cent of GDP, the IMF forecasts.
“We have been urging more attention for closure on this problem. We call them ‘zombie firms’. Let the zombies go away,” Georgieva said, encouraging officials to speed up the exit of unviable property developers from the market.
Beijing closely watches the IMF’s “Article IV” review for approval or criticism of its economic management, with its endorsement serving as a valuable counter amid rising tensions with major trading partners.
TRADE TENSIONS
Georgieva said it was not in China’s interests to provoke its trading partners to impose curbs on Chinese imports over fears that a flood of cheap goods would devastate their manufacturing sectors.
The IMF upgraded its China growth forecast for 2025 to 5 per cent, from 4.8 per cent, citing the production powerhouse’s strong outbound shipments, also lifting its 2026 forecast to 4.5 per cent, from 4.2 per cent.
Net exports constituted 1.1 per cent of China’s 5 per cent growth for this year, the IMF chief said, while adding that the Chinese economy was on course to contribute 30 per cent of global growth.
China has posted a record $1 trillion trade surplus for the first time, November trade data showed, sparking criticism that its slowing economy was being propped up by dominating an ever-growing share of the global industrial value chain and flooding emerging markets with cheap goods diverted from the U.S. due to President Donald Trump’s tariffs that deny their manufacturing sectors a chance to develop.
