The IMF mission to China calls on Beijing to stimulate consumption and support financial stability

An IMF team, led by Sonali Jain-Chandra, Chief of the Fund’s Mission to China, concluded a visit to Beijing and Shanghai from December 1 to 10, as part of the 2025 Article IV consultations.

 

 

The team held constructive discussions with senior officials from the government and the People’s Bank of China, as well as representatives from the private sector And academics, on economic developments, risks and policy priorities.

 

Kristalina Georgieva, Director General of the Fund, participated in some of these discussions, where she met with Prime Minister Li Qiang, Deputy Prime Minister He Lifeng, Governor of the People’s Bank of China Pan Jungsheng, Minister of Finance Lan Fu’an, Minister of Commerce Wang Wentao, and a number of senior officials. Officials.

 

First Deputy Director General, Dan Katz, also participated in part of the mission and met with high-level government officials.

 

At the conclusion of the visit, Jain-Chandra issued a statement about the Chinese economy showing a remarkable ability to withstand despite the multiple shocks it has faced in recent years, and we expect growth to record 5.0% in 2025 and 4.5% in 2026, which are upward revisions of 0.2 and 0.3 percentage points, respectively, compared to the October World Economic Outlook forecast, supported by recently announced policy measures and reductions in bilateral tariffs between the United States and China; We also expect general inflation to rise slightly from an average of 0% in 2025 to 0.8% in 2026.”

 

She added: “This resilience is under pressure due to continuing imbalances. The prolonged adjustment in the real estate sector, its repercussions on the finances of local governments, and weak consumer confidence have all led to weak domestic demand and pressures Deflationary”.

 

 

She pointed out that the decline in inflation compared to trading partners led to a decline in the real exchange rate, which supported exports and contributed to growth, but it also exacerbated external imbalances, with the current account surplus expected to rise to 3.3% of GDP in 2025, and in light of the large size of the Chinese economy and the escalation of global trade tensions, reliance on exports becomes less sustainable to achieve growth. Strong.

 

She continued: “Long-term structural challenges will also burden the economy in the medium term, as growth is expected to slow as a result of declining productivity, aging population, high levels of debt, and declining returns on investment.”

 

She indicated that the Chinese authorities realize the importance of enhancing consumption as an engine of growth, and have already implemented welcome policies, including an expansionary fiscal policy, monetary easing, In addition to measures directed to support consumption and the real estate sector.

 

Jain-Chandra said, “The Fund’s experts agree with the necessity of China moving to a consumption-led growth model, away from excessive reliance on exports and investment.”

 

She added that the first priority is to address the imbalances through expansionary macro policies and complementary reforms to reduce the country’s high savings rates. Households.

 

She stressed that additional financial stimulus supported by monetary easing and greater flexibility in the exchange rate would support domestic demand and return inflation to its target levels. These measures must also be accompanied by social reforms that strengthen the social protection system and support the process of correcting the conditions of the real estate sector, which enhances confidence and consumption. Likewise, reducing unjustified support for industrial policies and ineffective investments will limit misallocation Resources.

 

She indicated that this package would also enhance the appreciation of the real exchange rate and reduce external imbalances.

 

She explained that the second priority is to ensure overall financial stability and address the vulnerabilities associated with debts, through reforms in the financial and tax frameworks and cleaning up balance sheets.

 

She called for the restructuring of vehicle debts. Financing unsustainable local governments using insolvency frameworks to reduce financial pressures, provided that this step is accompanied by a comprehensive plan to address the repercussions on the financial sector and strengthen public financial frameworks.

 

She stressed that to ensure the stability of government debt, there will be a need to implement sustainable financial austerity in the medium term after deflationary pressures disappear permanently.

 

The third priority is to continue structural reforms to enhance growth in the medium term through Facing a productivity slowdown and a shrinking workforce.

 

  Reform priorities include lowering barriers to internal trade, opening up the services sector to competition, leveling the playing field among businesses, and implementing labor market reforms to address skill mismatch and youth unemployment.

 

Jain-Chandra concluded by saying: “Progress on the three policy priorities could raise China’s GDP by about 2.5 percentage points by 2030 and reduce external imbalances, which would improve living standards and prosperity within China, and contribute to a stronger and healthier global economy.”  

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