^{Photo: People's Daily}

China is being pressed by the International Monetary Fund to accelerate its long discussed transition toward a consumption driven economic model. According to IMF Managing Director Kristalina Georgieva, the world’s second largest economy can no longer rely on exports as its dominant engine of growth without intensifying global trade frictions at a time when geopolitical sensitivities are already high.

Georgieva stressed that China’s size makes export led expansion increasingly difficult to sustain and potentially destabilizing for the global economy. She noted that China’s rapid export growth has already triggered defensive reactions from the United States, Europe and emerging markets such as Mexico as they attempt to manage rising import volumes. China’s trade surplus reached more than one trillion dollars over the twelve months through November, underscoring the scale of the imbalance. She warned that further dependence on exports may push other governments to impose broader restrictions to protect domestic industries.

The IMF therefore argues that China must move faster on the reform plan it initiated decades ago to boost domestic consumption. Weak household confidence, particularly due to the prolonged property downturn, has kept consumer spending below expectations since the pandemic. Georgieva said the property sector remains a major drag on sentiment and investment. IMF analysis suggests China may need to allocate roughly five percent of its GDP over the next three years to address structural issues in the real estate market. This includes completing unfinished pre sold residential projects and enabling financially unviable developers to leave the market. She referred to such firms as “zombie companies” and said allowing their orderly exit is essential for restoring confidence.

Stronger social spending could also play a significant role in lifting consumption. The IMF estimates that increased social support, particularly in rural regions, could boost household demand by up to three percentage points of GDP over the medium term. Georgieva emphasized that China should allow market forces a larger role in its economic system, including in the technology sector and the valuation of the renminbi. The IMF highlighted that China’s low inflation relative to its trading partners has effectively weakened the country’s real exchange rate, helping fuel export competitiveness and increasing its current account surplus.

Alongside its policy guidance, the IMF raised its forecast for China’s economic growth in 2025 to 4.5 percent, an upgrade driven by domestic stimulus measures and lower than expected tariff pressures. This represents a 0.3 percentage point improvement from the IMF’s earlier projection. The forecast for 2026 also rose by 0.2 percentage points to five percent. Inflation is expected to increase modestly to an average of 0.8 percent next year from zero percent this year. China’s consumer price index reached 0.7 percent year over year in November, marking its highest reading in almost two years.

The IMF warned, however, that China’s shift to a more consumption oriented economy will require more immediate and forceful stimulus. Chinese policymakers have laid out new development priorities that include strengthening domestic demand alongside technological self sufficiency. Leaders are scheduled to meet later this week for their annual economic planning session, where measures for the coming year will be finalized.

Georgieva’s remarks followed the conclusion of the IMF’s ten day Article IV Consultation in Beijing and Shanghai. During the visit, the IMF delegation held discussions with top Chinese officials including Premier Li Qiang, Vice Premier He Lifeng, People’s Bank of China Governor Pan Gongsheng, Finance Minister Lan Fo’an and Commerce Minister Wang Wentao. Li also met with Georgieva and representatives from nine other major economic institutions, stressing China’s commitment to cooperation and reaffirming that the country is on track to meet its annual economic targets.

The IMF’s leadership team included Mission Chief Sonali Jain Chandra and First Deputy Managing Director Dan Katz, who participated in portions of the review and met with senior authorities during the mission.