IMF Warns China of 'Persistent Structural Headwinds'
The International Monetary Fund concluded its 2025 Article IV consultations with China, warning of significant economic challenges. The fund highlighted concerns over the weak property market, high local government debt, and subdued consumer demand. The IMF recommended targeted fiscal support and further opening of the services sector to prevent stagnation.
- The IMF projects China's GDP growth will slow from 5% in 2025 to 4.5% in 2026, citing the prolonged effects of trade tariffs and uncertainty in global trade. This slowdown is anticipated despite China's economy showing resilience and remaining a significant driver of global growth. - China's property market slump, now in its fifth year, is a major risk, with an estimated 80 million unsold or vacant homes. S&P Global forecasts that primary property sales will fall by 10-14% in 2026, which would further hinder the deleveraging efforts of developers. - At the end of 2025, China's local government debt reached CNY 54.82 trillion (USD 7.88 trillion), a 15% increase from the previous year. This was largely driven by a record issuance of local government bonds, totaling approximately CNY 10.31 trillion in 2025. - In response to the high levels of "hidden debt," a debt-resolution campaign was launched in late 2024, which includes a plan for local governments to swap existing hidden debts with official bonds. By the end of September 2025, this initiative had reportedly reduced the number of Local Government Financing Vehicles (LGFVs) by 71% compared to March 2023. - Subdued domestic demand is reflected in rising household savings, with household deposits growing by nearly 10% in 2025 to reach CNY 167 trillion. This indicates a continued preference for saving amid economic uncertainty and weak confidence in consumption and home buying. - The IMF's core recommendation is for China to shift its economic model from investment and exports to consumption-led growth. The fund estimates its proposed reforms, including strengthening the social safety net, could boost the consumption-to-GDP ratio by about four percentage points over five years. - Chinese officials have contested some of the IMF's conclusions, arguing that the country's export growth in 2025 was primarily driven by its competitiveness and innovation, not just a weak currency. - A key part of the IMF's advice is to further open up China's services sector to foster competitive neutrality among firms. In 2025, the value added of the tertiary (services) industry in China grew by 5.4%.
