BEIJING: The International Monetary Fund (IMF) on Wednesday urged China to make the “brave choice” of speeding up structural reform. Pressure is growing on the world’s second-largest economy. It needs to shift towards a consumption-led model and curb reliance on debt-driven exports.
“China is simply too big to generate much (more) growth from exports. Continuing to depend on export-led growth risks furthering global trade tensions,” IMF Managing Director Kristalina Georgieva told a press conference. This statement concluded the Fund’s regular review of the $19 trillion economy.
“It requires brave choices and determined policy action,” Georgieva added. She urged Chinese policymakers to adopt a comprehensive macroeconomic policy package. This package should include additional fiscal stimulus and greater monetary easing. Georgieva also called for targeted steps to rein in local government debt. She advocated resolving a protracted property crisis and improving social welfare provision.
Cost of ending property crisis
Increased social spending and reforming China’s internal passport “Hukou” system could significantly impact the economy. This system has largely tethered people’s destinies to their place of origin since the 1950s. Such reforms could boost consumption by up to 3 percentage points of GDP, she added.
Meanwhile, bringing an end to the property crisis within the next three years will require significant investment. The crisis weighs heavily on domestic demand, as some 70 per cent of Chinese household wealth is in real estate. To resolve it, China will need to spend 5pc of GDP, the IMF forecasts.
“We have been urging more attention for closure on this problem. We call them ‘zombie firms’. Georgieva encouraged officials to speed up the exit of unviable property developers from the market. She said, “Let the zombies go away.”
Beijing closely watches the IMF’s “Article IV” review for approval or criticism of its economic management. Its endorsement serves as a valuable counter amid rising tensions with major trading partners.
Trade tensions
Georgieva said it was not in China’s interests to provoke its trading partners to impose curbs on Chinese imports over fears that a flood of cheap goods would devastate their manufacturing sectors.
The IMF upgraded its China growth forecast for 2025 to 5pc, from 4.8pc, citing the production powerhouse’s strong outbound shipments, also lifting its 2026 forecast to 4.5pc, from 4.2pc. Net exports constituted 1.1pc of China’s 5pc growth for this year, the IMF chief said, while adding that the Chinese economy was on course to contribute 30pc of global growth.
China has posted a record $1 trillion trade surplus for the first time, November trade data showed, sparking criticism that its slowing economy was being propped up by dominating an ever-growing share of the global industrial value chain and flooding emerging markets with cheap goods diverted from the US due to President Donald Trump’s tariffs that deny their manufacturing sectors a chance to develop.
Economists have also accused Beijing of benefiting for too long from an undervalued renminbi.
“We haven’t recommended explicit action to appreciate the RMB,” Georgieva said. “We would like to see China with an exchange rate that is flexible both ways, up and down.”
Georgieva talked up China’s preparedness for artificial intelligence and other transformative technologies, but urged Beijing to give private firms a greater voice in shaping their development.
More broadly, “public investment and industrial policies in support of selected firms and sectors should be scaled back”.
“Putting market forces in the front seat, reducing the size of industrial policy support, would also generate savings, which could be spent to increase social spending and resolve the problems in the real estate sector,” she added.
The Author
Discover more from News Network Plus
Subscribe to get the latest posts sent to your email.
