（Singapore, 19.02.2026）The International Monetary Fund (IMF) has issued a strong warning to China, saying the country’s current economic policies are creating problems not only at home but also for the rest of the world. In its latest annual review of China’s economy, the Washington-based lender urged Beijing to make a major shift toward a growth model driven by domestic consumer spending instead of exports and heavy state support for industry.
In a statement released on Wednesday alongside its Article IV consultation report, the IMF’s executive directors said that “transitioning to a consumption-led growth model should be the overarching priority.” In simple terms, the IMF believes China needs to rely less on selling goods overseas and more on encouraging its own people to spend.
Growing External Imbalances
A key issue highlighted in the report is China’s large current-account surplus — the gap between what it earns from exports and what it spends on imports and overseas payments. According to the IMF, China’s surplus reached 3.3% of gross domestic product (GDP) in 2025, more than double the 1.5% it had projected a year earlier.
Preliminary data suggests the figure may have been even higher, at around 3.7% of GDP. That was largely driven by a record $1.2 trillion surplus in goods trade — meaning China exported far more goods than it imported.
The IMF warned that such “external imbalances” are causing “adverse spillovers to trading partners.” When China exports significantly more than it import, other countries may struggle with weaker industries, job losses, or rising trade tensions.
The report mentioned “external imbalances” more than 10 times — a noticeable change from previous years. Economists have increasingly pointed out that China’s expanding export capacity could weigh on global growth, especially if other countries respond with tariffs or other trade barriers.
The IMF also suggested that China’s currency, the renminbi (RMB) or yuan, may be undervalued. When adjusted for inflation and measured against a basket of trading partners, the IMF estimates the yuan could be about 16% below its fair value. A weaker currency makes exports cheaper and more competitive overseas, while making imports more expensive at home.
The fund called for “greater exchange rate flexibility,” implying that allowing the yuan to strengthen could help rebalance trade.
China’s representative on the IMF board, Zhengxin Zhang, disagreed with this assessment. He said China’s currency policy is “clear and consistent,” and that market forces play a decisive role. He also argued that export growth in 2025 was driven mainly by competitiveness and innovation, as well as front-loading of shipments due to US trade policies.
Slowing Growth and Domestic Challenges
China’s economy grew by 5% in 2025, meeting the government’s official target. However, the IMF expects growth to slow to 4.5% in 2026. Many economists believe Beijing may set a target between 4.5% and 5% at the upcoming National People’s Congress meeting.
One major challenge remains weak domestic demand. Nearly one-third of last year’s growth came from net exports, according to the IMF. The fund warned that this heavy reliance on exports has “triggered overcapacity concerns,” meaning China may be producing more goods than global markets can absorb.
If trading partners respond with trade restrictions, China’s exports — and therefore its growth — could be at risk.
The IMF also raised serious concerns about deflation — a prolonged fall in prices. Persistent deflation can hurt the economy because it signals weak demand and may lead companies to cut investment and wages. The IMF said China’s deflationary pressures are partly linked to a slump in demand, including from the prolonged correction in the property sector.
China’s property market has struggled for several years, with unfinished projects and financially distressed developers hurting confidence. The IMF suggested that stronger central government funding to address unfinished housing projects could help rebuild consumer confidence.
Rising Debt and Policy Reform
Another concern is rising government debt. The IMF estimates that China’s government debt climbed to nearly 127% of GDP in 2025 — about 10 percentage points higher than in 2024. It expects debt to exceed 135% of GDP this year and continue rising through 2034.
High debt levels, especially among local governments, limit the ability to stimulate demand through spending. Local governments have faced financial strain due to falling land sales and weaker property markets.
The IMF also questioned the scale and efficiency of China’s industrial policies. It estimated that government support for priority sectors amounted to about 4% of GDP in 2023. For comparison, European Union state aid in 2022 was about 1.5% of GDP.
The fund argued that scaling back “unwarranted” industrial policies by about 2% of GDP over the medium term would improve productivity and reduce waste. It believes some resources are being misallocated, meaning investment may not be flowing to the most efficient parts of the economy.
Overall, the IMF is calling for a “comprehensive and more forceful response” that combines expansionary macroeconomic policies — such as fiscal stimulus — with deeper structural reforms.
“Reorienting China’s growth model requires significant cultural and economic policy transformation,” the IMF directors said.
The debate now centers on whether Beijing will take bold steps to shift toward a more consumption-driven model — or continue relying heavily on exports and state-led industrial support. The IMF’s warning makes clear that the choice will not only shape China’s future but could also have wide-reaching consequences for the global economy.
