IMF calls for policies to strengthen China’s domestic demand

Story by ANI | Posted by Ashhar Alam | Date 20-02-2026

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New Delhi

China's economy expanded by 5 per cent in 2025 and is projected to grow 4.5 per cent this year, 0.3 percentage points higher than the IMF's October forecast, reflecting resilience driven by "robust exports and fiscal stimulus," according to the International Monetary Fund (IMF).

However, the IMF cautioned that "the growth model of the world's second-largest economy faces increasing challenges," noting that "domestic demand has been subdued, in part because the protracted property slump, combined with a weak social safety net, hurt consumers' willingness to spend."

The Fund warned that this dynamic "has resulted in deflationary pressures and has made growth increasingly dependent on external demand," adding that "China cannot count on ever higher exports to drive durable growth in the coming years." It stressed that "pivoting to consumption-led growth [is] the overarching policy priority."

The IMF said that while authorities have adopted "a more expansionary fiscal policy stance in 2025" involving "targeted social subsidies" and monetary easing, more decisive action is needed.

"We recommend a comprehensive macroeconomic policy package focused on additional fiscal stimulus, supported by further monetary policy easing and greater exchange rate flexibility," the IMF stated. It said such a policy mix "would help lift inflation to a healthy level and raise domestic demand, making the economy less dependent on exports."

At the same time, the Fund underscored the need to rebalance fiscal composition, stating that policymakers should consider "paring back public investment and industrial policies that support specific industries." This would "increase productivity by better allocating resources and letting market forces play a bigger role," while freeing up resources "to lift social spending and address the property sector contraction, including by supporting buyers of unfinished housing."

IMF emphasised that fiscal policy "should prioritise strengthening social protection to give people confidence to spend more," specifically citing "healthcare, pensions, unemployment benefits, and social assistance."

"In all these areas, we see scope for increased benefits and broader coverage," it said, arguing that stronger social protection "would reduce the need for vulnerable people to save excessively to protect against unexpected shocks or life events."

Citing IMF research, the report noted that "doubling social spending in rural areas can lead to a cumulative increase in consumption over a five-year horizon, reaching 2.4 percentage points of gross domestic product."

The IMF also highlighted reforms to the household registration system. "Relaxing hukou requirements can significantly lower saving rates," it said, estimating that "granting urban status to 200 million rural migrants could raise the consumption-to-GDP ratio by an additional 0.6 percentage points."

Additionally, the Fund recommended that "making taxes on labour more progressive and strengthening taxes on capital can reduce inequality and increase disposable income for lower-income people who tend to spend more of their income."

IMF said its policy recommendations "would significantly rebalance the economy toward consumption. The measures "could boost the consumption-to-GDP ratio by about 4 percentage points over five years."

With China contributing about 30 per cent to global growth, the IMF concluded that "a better-balanced economy also means a stronger and healthier world economy."