ASIATODAY.ID, WASHINGTON – IMF Managing Director Kristalina Georgieva has issued one of the strongest warnings yet about the future of China’s economy, urging Beijing to take bold, systemic action to escape the country’s entrenched excess saving model, weakening domestic consumption, and escalating debt risks.
Speaking in a policy briefing, on December 10, 2025, Georgieva emphasized that China must adopt a comprehensive macroeconomic package combining additional fiscal stimulus, further monetary policy easing, and greater exchange rate flexibility to stabilize growth and restore confidence.
According to Georgieva, China’s consumption could rise by up to 3 percentage points of GDP in the medium term if the government strengthens its social protection system.
She highlighted three critical policy actions:
Expanding social spending, particularly in rural regions
Accelerating Hukou reform to ensure migrant workers gain equal access to public services
Giving households the confidence to spend more and save less
“A stronger social safety net is essential for shifting China away from its excess-saving habit and toward sustainable, consumption-led growth,” Georgieva said.
Shift Away from Overinvestment and Industrial Favoritism
Georgieva also stressed that China needs to scale back public investment and reduce industrial policy support for selected firms and sectors. Doing so would: improve productivity through better resource allocation, allow market forces to lead economic decision-making, create fiscal space to increase social spending, accelerate solutions to China’s troubled property sector.
“China’s growth model must evolve. Market forces need to play a stronger role,” she stated.
Structural Reforms: The Foundation for Future Growth
The IMF chief outlined a series of structural reforms necessary to lift China’s medium-term growth trajectory: reducing regulatory burdens, lowering barriers to internal trade, especially in services, ensuring a level playing field across all enterprises, modernizing labor-market policies to reduce skill mismatches and youth unemployment.
Georgieva added that China is well placed to leverage artificial intelligence and energy-efficient technologies—but only if risks to labor markets and financial stability are properly managed.
Confronting the Domestic Debt Crisis
Georgieva warned that China’s high levels of public and corporate debt—fuelled by years of heavy investment—pose significant risks.
While welcoming the government’s debt-swap program for reducing short-term financial pressure, she stressed that: unsustainable local-government debt must be restructured, financial oversight needs further strengthening, fiscal discipline and transparency must be tightened.
“High debt levels are a major vulnerability. China must address them decisively to safeguard long-term stability,” Georgieva emphasized.
The Potential Payoff: Higher GDP, Jobs, and Reduced Deflation Risks
If China implements the IMF’s three major priorities—boosting consumption, completing structural reforms, and resolving the debt overhang—the benefits could be transformative:
GDP could be 2.5% higher by 2030
Around 18 million new jobs could be created
Deflationary pressures would ease
The real exchange rate would appreciate
The current account surplus would shrink
Georgieva noted that a more balanced Chinese economy would also strengthen global economic resilience.
A Historic Opportunity for China’s Next Economic Chapter
According to Georgieva, China now stands before a historic opportunity to shift from export- and investment-driven growth toward a more dynamic, consumption-led and service-oriented economy.
“This transition requires courageous choices and determined policy action. The IMF will continue to work closely with China as it builds a more balanced and inclusive economic future,” she concluded. (AT Network)
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