THE International Monetary Fund (IMF) has sharply criticised China’s economic approach, highlighting both domestic inefficiencies and adverse global spillovers, and urged Beijing to reorient its growth model towards consumer-led expansion.
“Transitioning to a consumption-led growth model should be the overarching priority,” Reuters cited the IMF executive directors saying in a statement on February 18, released alongside their annual review of China’s economy.
The fund noted that China’s large current account surplus, partly driven by a real depreciation of the renminbi, has created negative effects for trading partners, echoing previous warnings from economists at Goldman Sachs.
China’s representative on the IMF executive board, Zhang Zhengxin, rejected the criticism, arguing that the nation’s export growth in 2025 stemmed primarily from competitiveness and innovation, along with effects of Washington’s trade policies.
Nonetheless, the executive board called for a major policy shift, urging a comprehensive transformation ahead of the upcoming National People’s Congress, which is expected to announce China’s 2026 economic targets.
“Reorienting China’s growth model requires significant cultural and economic policy transformation,” the IMF directors stated, recommending a forceful combination of structural reforms and macroeconomic stimulus.
They highlighted the need for central government funding to address the overhang of unfinished properties in the struggling property sector as a way to restore consumer confidence.
After China reported 5 per cent GDP growth in 2025, meeting official targets, the IMF projects expansion to slow to 4.5 per cent in 2026, a range many analysts expect Beijing to formalise in March.
The report repeatedly emphasised “external imbalances,” with the current account surplus estimated at 3.3 per cent of GDP, more than double the 2024 projection.
Preliminary data suggests the surplus may have reached 3.7 per cent, driven by a record US$1.2 trillion excess of exports over imports, a figure that could approach 1 per cent of global GDP within three years.
The IMF also flagged an undervalued yuan, estimating it roughly 16 per cent below trade-weighted, inflation-adjusted levels, which has bolstered exports while suppressing imports amid weak domestic demand. The directors recommended greater exchange rate flexibility to address distortions.
China’s industrial and fiscal policies were also criticised for inefficiency, with government measures for priority sectors costing around 4 per cent of GDP by 2023—far higher than comparable EU state aid.
The fund suggested trimming roughly 2 per cent of GDP in such policies to improve productivity and reduce resource misallocation. Nearly a third of China’s 2025 growth came from net exports, heightening concerns over overcapacity and potential trade conflicts.
The IMF further warned of deflationary pressures, linking them to weak demand and the protracted property correction, compounded by high local government debt.
Government debt is estimated to have reached almost 127 per cent of GDP in 2025 and is projected to exceed 135 per cent in 2026, continuing to rise through 2034. - February 19, 2026
