The International Monetary Fund has advised China to strengthen domestic demand and tackle economic imbalances to prevent a slowdown that could impact the global economy. Despite facing various challenges, China’s economy grew by 5% in 2025, supported by exports and policy stimulus. However, the IMF highlighted weak private domestic demand and low inflation as areas of concern.
Growth is anticipated to decelerate to 4.5% in 2026 due to prolonged tariff effects and trade uncertainties. The IMF cautioned that risks are skewed towards a downturn, especially if the property sector contracts further, leading to weakened domestic demand and continued reliance on exports. Directors emphasized the importance of transitioning to a consumption-driven growth model as a top priority for China.
The IMF commended China’s fiscal expansion in 2025 but recommended maintaining an expansionary stance until deflationary pressures ease. It suggested reallocating spending towards supporting consumption and the property sector while reducing inefficient investments. Additionally, the IMF proposed further monetary easing and increased exchange rate flexibility as part of the policy mix.
China was urged to address risks in the property sector by providing central government funding for unfinished housing projects. Strengthening social protection to reduce precautionary savings was also advised. Directors stressed the necessity of reducing unwarranted industrial policies to lower domestic misallocation of resources and minimize fiscal costs.
In terms of trade, the IMF recognized China’s role in promoting open trade amid growing fragmentation pressures. It encouraged constructive collaboration with trade partners to resolve disputes and cautioned against using national security justifications excessively. Long-term debt sustainability was highlighted as contingent on significant fiscal consolidation once the economy has stabilized. The IMF also recommended restructuring local government financing and enhancing fiscal frameworks for sustainable growth.
