The International Monetary Fund (IMF) called on China this Wednesday, 25th, to make the transition to a growth model based on consumption a “central priority”, also urging Beijing to reduce an “unjustified industrial policy”, in the face of growing external imbalances.
The recommendations of the IMF technical team, released before the annual meetings of the National People’s Congress (China’s highest legislative body), reinforce calls for economic rebalancing, especially after the record trade surplus recorded by China last year intensified global concerns.
“China needs to move decisively towards consumption-led growth,” said Sonali Jain-Chandra, head of the IMF mission for China, cited by the Hong Kong newspaper South China Morning Post.
The executive added that the IMF positively welcomes the emphasis given to consumption in the proposals of the 15th Five-Year Plan and in the statement from the Central Economic Work Conference in December, which defined the priorities for the year.
In its annual report on the Chinese economy – the so-called consultation under Article IV – the IMF advocates a more robust fiscal stimulus to boost consumption and alleviate weaknesses in the real estate sector, along with greater social protection, new monetary relief and greater exchange rate flexibility.
“The consumption-led growth model must be the central priority”, highlighted the IMF executive board, adding that an expansionist orientation must be maintained until deflationary pressures diminish on a lasting basis.
The report considers that the measures adopted so far “remain insufficient given the scale of the challenges” and recommends an additional budgetary expansion equivalent to 0.8% of GDP in 2026, compared to the base scenario.
The IMF projects Chinese economic growth to slow to 4.5% in 2026, after expanding 5% last year.
The statements come before the so-called “two sessions”, the annual meetings of China’s legislative and consultative bodies, at which announcements on growth and inflation targets, the budget deficit and public debt issuance quotas are expected.
In the same statement, the executive directors of the IMF highlighted the need to “reduce unjustified industrial policy to reduce the misallocation of internal resources, reduce budgetary costs and mitigate external effects”.
The Fund welcomed the Chinese campaign against so-called “involution” – excessive competition between sectors – but called for stronger incentives to contain excess investment by local governments.
Jain-Chandra acknowledged that industrial policy has gained new momentum at a global level, but stated that, according to IMF estimates, the use of these measures is “more intense in China than in other large economies”, representing around 4% of GDP.
“We are not saying to eliminate support for industrial policy, but rather to reduce it by half”, he stated, defending that only well-targeted measures be maintained that correct market failures.
In a separate statement, Zhang Zhengxin, IMF executive director for China, disputed the technical team’s estimates, considering them “significantly overstated”.
Zhang said Chinese industrial policies mainly focus on promoting innovation, green transition and supporting small and medium-sized enterprises, contributing positively to environmental transformation and generating favorable effects at a global level.
He also added that industrial policy is a common practice in several countries, both in the past and currently, and “is by no means exclusive to China”, calling for “objective and balanced” debates that avoid double standards and excessively broad definitions.
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