IMF recommends China to prioritize consumption-driven growth, reduce reliance on exports

ISTANBUL

The International Monetary Fund (IMF) said late Wednesday that shifting to a consumption-driven growth model should be a key priority for China and urged authorities to implement reforms to rebalance the economy toward domestic demand and reduce reliance on exports.

"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.

Even so, the IMF said the growth model of the world’s second-largest economy is under mounting pressure. Domestic demand has remained weak, partly because of a prolonged downturn in the property sector and an inadequate social safety net that have dampened consumer confidence and spending.

Low inflation compared with trading partners has led to a depreciation in the real exchange rate, contributing to strong exports and a current account surplus estimated to reach 3.3% of gross domestic product, the statement said.

The fund noted that inflation is only expected to increase gradually and deflationary pressures are projected to persist, while in the medium term, growth is expected to continue to weaken gradually due to a declining labor market, a decrease in returns on investment, and a slowdown in productivity growth.

Fiscal, social recommendations

The IMF called for a broad macroeconomic package centered on stronger fiscal stimulus, supported by additional monetary easing and greater exchange rate flexibility, to revive domestic demand and reduce reliance on exports.

Fiscal spending should shift away from heavy public investment and targeted industrial policies toward strengthening social protection and addressing the property downturn, including support for buyers of unfinished homes, the fund said.

Expanding health care, pensions, unemployment benefits and social assistance would bolster household confidence and spending, while reforms to the household registration, or hukou, system could raise consumption by giving migrants greater access to urban benefits.

More progressive labor taxes and stronger taxation of capital could help reduce inequality and raise disposable incomes for lower-income groups, further supporting consumption, the IMF said.

"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.