ASIATODAY.ID, WASHINGTON — The International Monetary Fund (IMF) has issued a pointed warning: China’s export-reliant growth model is no longer sustainable. Unless the world’s second-largest economy decisively pivots toward domestic consumption, it risks prolonged deflationary pressures and deeper structural slowdown.
In its latest analysis, “How China’s Economy Can Pivot to Consumption-led Growth” (February 18, 2026), IMF economists note that China remains resilient. The economy expanded by 5 percent in 2025 and is projected to grow 4.5 percent this year—0.3 percentage points higher than the October forecast.
But behind the headline numbers lie mounting challenges.
Property Slump and Cautious Consumers
According to the IMF, the protracted property downturn—combined with a relatively weak social safety net—has dampened household confidence and spending. As a result, domestic demand has remained subdued, inflation pressures have turned negative, and growth has become increasingly dependent on external demand.
China, the IMF argues, cannot rely indefinitely on ever-rising exports to sustain long-term growth.
“Pivoting to consumption-led growth must be the overarching policy priority,” the report’s authors—Daniel Garcia-Macia, Sonali Jain-Chandra, Siddharth Kothari, and Yizhi Xu—emphasize.
Stronger Stimulus and Fiscal Rebalancing
The IMF recommends a comprehensive macroeconomic policy package, including:
– Additional and more forceful fiscal stimulus
– Further monetary easing
– Greater exchange rate flexibility
Together, these measures would help lift inflation to healthier levels and boost domestic demand.
Equally important is a shift in fiscal composition. The IMF suggests scaling back public investment and industry-specific industrial policies, reallocating resources toward social spending and targeted support for the property sector—particularly for buyers of unfinished housing projects.
Social Reform as a Game Changer
Strengthening social protection is seen as critical to unlocking consumption. Expanding and enhancing: Healthcare coverage, Pension systems, Unemployment benefits, Social assistance programs
Would reduce precautionary savings and give households greater confidence to spend.
An IMF working paper estimates that doubling social spending in rural areas could raise cumulative consumption by up to 2.4 percent of GDP over five years.
Reforming the hukou (household registration) system is another key lever. Granting full urban status to 200 million rural migrants could increase the consumption-to-GDP ratio by an additional 0.6 percentage points.
The IMF also calls for more progressive labor taxation and stronger capital taxation to reduce inequality and raise disposable income among lower-income households, who tend to spend a higher share of their earnings.
Global Implications: 30 Percent of World Growth
With China contributing roughly 30 percent of global growth, its economic rebalancing carries worldwide consequences. A stronger, consumption-driven China would not only stabilize its own outlook but also reinforce global economic resilience.
The central question now is whether Beijing is prepared to recalibrate its growth engine before external headwinds and deflationary risks erode its momentum further. (AT Network)
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