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The International Monetary Fund (IMF) has reiterated that China must redirect its economic growth model towards strengthening domestic demand, which has remained subdued due to the ongoing property sector downturn. The renewed emphasis came in the IMF's latest World Economic Outlook, following pressure from the United States Treasury for a more critical stance on China's economic approach. The IMF warned of rising financial stability risks, weak credit demand, and a potential debt-deflation trap weighing on the Chinese economy.
The International Monetary Fund (IMF) stated earlier this week that China needs to rebalance its economic growth model towards domestic demand, which has remained sluggish for several years amid the country's prolonged property sector crisis. The observation, featured in the IMF's latest World Economic Outlook, follows earlier calls from U.S. Treasury Secretary Scott Bessent for the global lender to intensify its criticism of China's economic policies. Dan Katz, Bessent's former chief of staff, recently assumed the IMF's second-highest position, giving further prominence to this stance. Advertisement
Pierre-Olivier Gourinchas, the IMF's chief economist, mentioned during a press briefing that while China continues to produce large quantities of manufactured goods for export, falling prices indicate limited market capacity to absorb the surplus. He observed that the country's export-driven growth model is showing signs of strain and noted that the IMF's advice to Chinese authorities has consistently been to transition towards a more sustainable domestic demand-driven economy.
In an accompanying blog post, Gourinchas described China's economic outlook as worrying, warning that financial stability risks are rising as real estate investment continues to decline and overall credit demand remains weak. He further explained that the unresolved property crisis has burdened banks with non-performing loans, dampening both consumer and business sentiment for over four years.
Gourinchas also pointed out that Beijing's recent shift towards subsidising investments in strategic sectors such as electric vehicles has delivered mixed outcomes. While the policy has spurred growth in these industries, it has also led to inefficiencies in resource allocation and imposed substantial fiscal costs.
The IMF's latest assessment underscores deepening concerns about China's economic trajectory as the prolonged property slump continues to erode domestic demand and financial confidence. Although government efforts to boost strategic sectors have generated momentum in select areas, the broader economy faces persistent structural imbalances. The IMF has urged Beijing to prioritise domestic consumption and address financial vulnerabilities to ensure long-term, sustainable growth beyond the export-led model.
Source - Reuters
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