The IMF has warned that China’s export-led growth strategy is creating adverse spillovers for other economies, as widening trade surpluses, deflationary pressures and rising debt deepen global imbalances
The International Monetary Fund has warned China, cautioning that Beijing’s export-driven growth strategy is generating “adverse spillovers” for the global economy and urging a structural pivot towards domestic consumption.
In its latest Article IV consultation on Wednesday, the IMF said transitioning to a consumption-led growth model must become China’s “overarching priority”, as it flagged widening external imbalances, entrenched deflationary pressures and rapidly rising debt.
Growth holds—but imbalances deepen
China’s economy expanded by 5 per cent in 2025, meeting the government’s official target, supported by robust exports and policy stimulus. But the IMF projects growth will slow to 4.5 per cent in 2026, reflecting prolonged trade tensions and persistently weak domestic demand.
At the heart of the Fund’s concern is China’s swelling current account surplus, estimated at 3.3 per cent of GDP last year—more than double the IMF’s earlier projection. According to Bloomberg calculations the figure may be closer to 3.7 per cent, driven by a record $1.2 trillion goods trade surplus.
Nearly one-third of China’s growth in 2025 came from net exports—a dependence the IMF warned is neither sustainable nor benign.
“Prolonged weak domestic demand risks entrenching deflationary pressures, while exports may be less able to drive growth going forward,” the Fund’s Executive Board said.
Currency and competitiveness debate
The IMF noted that subdued domestic inflation relative to trading partners has resulted in a real depreciation of the renminbi, effectively boosting export competitiveness. Staff estimates suggest the yuan is around 16 per cent undervalued in trade-weighted, inflation-adjusted terms.
China’s Executive Director at the IMF, Zhengxin Zhang, rejected that assessment, arguing that export growth in 2025 was primarily driven by competitiveness and innovation. He also described the Fund’s surplus estimate as “excessively large” and defended Beijing’s exchange-rate framework as market-oriented and consistent.
Industrial policy under scrutiny
In a critique, the IMF estimated that fiscal support for priority sectors amounts to roughly 4 per cent of GDP—significantly higher than comparable levels of state aid in the European Union.
Directors urged Beijing to scale back what they termed “unwarranted” industrial policy measures by about 2 per cent of GDP over the medium term. Such a shift, they argued, would improve productivity, reduce resource misallocation and lower fiscal costs, while easing international tensions linked to overcapacity.
The Fund also called for greater exchange-rate flexibility and a reorientation of fiscal spending—away from public investment and sector-specific subsidies, and towards social protection and household support.
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