Economy

Can China’s Economic Shift Unlock Growth? IMF Urges Consumption-Led Strategy

IMF urges China to shift stimulus to boost consumption, address real estate, and boost services.

October 16, 2025, 2:49 PM

Pedestrian walking with a large black, blue, and white umbrella past the light-colored exterior wall of the International Monetary Fund building.

This photo captures a person walking with an umbrella past the main facade of the International Monetary Fund Headquarters 2 Building in Washington, DC. By Bumble Dee / Shutterstock.com.

Executive Summary

The IMF has urged China to refocus its fiscal stimulus from industrial policy towards boosting domestic consumption to rebalance its growth model.

This shift is crucial due to persistent deflationary pressures, high uncertainty, and projected moderation in economic growth to 4.2% next year.

The IMF recommends resolving the real estate crisis, strengthening the social safety net, and developing the services sector to invigorate consumption.

The Story So Far

China’s economy, despite its resilience to U.S. tariffs due to strong exports and industrial policy, faces persistent deflationary pressures and high uncertainty. The International Monetary Fund (IMF) is urging China to pivot its growth model from export- and industry-driven to consumption-led, arguing this rebalancing is crucial for both domestic stability and global economic health. This recommended shift is partly due to an ongoing real estate crisis that has significantly dampened consumer confidence and highlights the need for a stronger social safety net and an invigorated services sector.

Why This Matters

The IMF’s recommendation for China to pivot its fiscal stimulus from industrial policy towards boosting domestic consumption signals a critical reorientation for both China’s economic stability and global growth. This shift is seen as essential to address persistent deflationary pressures, resolve the real estate crisis, and foster a more balanced, sustainable growth model, potentially mitigating future global trade imbalances and reducing reliance on an export-driven economy.

Who Thinks What?

The International Monetary Fund (IMF) urges China to refocus its fiscal stimulus efforts towards boosting domestic consumption rather than industrial policy, advocating for a rebalanced growth model, comprehensive solutions to the real estate crisis, an enhanced social safety net, and a revitalized services sector.

China’s current economic approach, as observed by the IMF, heavily relies on strong exports and industrial policy, which has contributed to the economy’s resilience but also to persistent deflationary pressures and high uncertainty.

The International Monetary Fund (IMF) has urged China to refocus its fiscal stimulus efforts towards boosting domestic consumption rather than industrial policy, despite the economy’s resilience in the face of U.S. tariffs. Krishna Srinivasan, Director of the IMF’s Asia and Pacific Department, stated on Thursday in Washington that China possesses the fiscal capacity for increased support, but emphasized the critical need to rebalance its growth model during the IMF and World Bank annual meetings. He also noted persistent deflationary pressures and high uncertainty within the Chinese economy.

Economic Outlook and Policy Shift

Srinivasan highlighted that China’s economy has remained robust, largely due to strong exports, which have helped mitigate the impact of elevated U.S. tariffs. However, he projected that growth is likely to moderate to 4.2% next year from 4.8% in 2025. This moderation underscores the urgency for a strategic shift in economic policy.

The IMF’s recommendation centers on pivoting China’s economic model from one heavily reliant on external demand to one driven by consumption-led growth. Srinivasan argued this rebalancing is crucial not only for China’s own economic stability but also for global economic health. This policy package is what the IMF is actively advocating for.

Addressing Structural Challenges

A primary concern is China’s ongoing real estate crisis, which has significantly dampened consumer confidence and household spending. Srinivasan stressed the importance of implementing comprehensive policies to durably resolve the housing crisis, thereby helping to invigorate consumption.

Beyond housing, the IMF official suggested that China should undertake extensive measures to strengthen its social safety net. He also identified the services sector as an area with substantial untapped potential, stating that greater emphasis on this sector could generate significant dividends for the nation.

IMF’s Recommendations

The International Monetary Fund’s assessment points to China’s need for a fundamental economic reorientation. While acknowledging the nation’s fiscal space for further stimulus, the IMF advocates for a strategic shift towards consumption-driven growth, underpinned by solutions to the real estate crisis, an enhanced social safety net, and a revitalized services sector.