Speech

Welcome, everybody, to this press conference to present IMF staff’s key findings from the 2025 Article IV consultation with China—our annual economic health check.

Over the past two weeks, our team has engaged in constructive discussions with the Chinese authorities. We express our sincere thanks to them.

Let me start with our updated assessment of the outlook. Despite sizeable shocks, China’s economy has shown remarkable resilience.

We have upgraded our projections for China’s growth to 5 percent in 2025 and 4.5 percent in 2026. These are upward revisions of 0.2 and 0.3 percentage points, respectively, from our October World Economic Outlook. They reflect both strong exports and welcome fiscal stimulus. This resilient growth has supported household incomes, which is particularly important at a time when consumer confidence is weak. China is contributing about 30 percent to global growth.

This outlook provides a conducive environment for the Chinese authorities to address the significant and pressing challenges the economy faces. The authorities recognize these challenges and are taking steps in the right direction. We are encouraging them to move more forcefully and with greater urgency.

Let me elaborate.

Domestic demand in China has been persistently weak, in part because the property sector is still on a shaky footing. This has depressed consumer confidence, leading to weak consumption and deflationary pressures.

Low inflation relative to trading partners has resulted in significant real exchange rate depreciation. This has made China’s exports cheaper, prolonging an excessive reliance on exports and worsening external imbalances.

As the second largest economy in the world, China is simply too big to generate much growth from exports. And continuing to depend on export-led growth risks furthering global trade tensions.

Add to this, the challenges from slowing productivity growth, high corporate and public debt levels, decreasing returns to investment, and an aging population. Taken together, these factors point to slower growth going forward.

Against this background, in their 15th Five Year Plan, the authorities have prioritized increasing consumption as a driver of growth. They also recognize the importance of reorienting the economy from goods to services.

We welcome this. Pivoting to consumption-led growth is the overarching policy priority for China.

The authorities are already taking steps to raise domestic consumption. They have adopted an expansionary fiscal stance, eased monetary policy, and implemented some targeted measures to reduce excess saving and address “involution”. They gradually increased the retirement age, which will help expand labor supply and raise medium-term growth prospects, and raised subsidies for elderly care and childcare to boost the services sector.

Still, more is needed.

In our discussions, we recommended more forceful measures, to be implemented with greater urgency. Let me highlight three key areas of focus.

First area of focus: tackling domestic imbalances, and in particular deflationary pressures. This will require even more expansionary macroeconomic policies, paired with necessary reforms to reduce excess saving.

We recommend a comprehensive macroeconomic policy package focused on additional fiscal stimulus, supported by further monetary policy easing and greater exchange rate flexibility.

Fiscal policy should prioritize strengthening the social protection system to give people the confidence and security they need to spend more and save less. Our analysis suggests that raising social spending, especially in rural areas, and accelerating Hukou reforms that provide migrant workers with access to social benefits can boost consumption by up to 3 percentage points GDP in the medium term.

At the same time, public investment and industrial policies in support of selected firms and sectors should be scaled back. This would increase productivity by improving resource allocation and putting market forces in the front seat. Reducing the size of industrial policy support would also generate fiscal savings, which could be redeployed to increase social spending and resolve the problems in the property sector.

Ultimately, boosting consumption would unlock the potential of China’s vast domestic market, resulting in smaller internal and external imbalances and a more durable source of growth.

Second area of focus: structural reforms to lift medium-term growth. We recommend reducing regulatory burdens; lowering barriers to internal trade, particularly in the service sector; leveling the playing field across firms; and implementing labor market measures to reduce skill mismatches and youth unemployment.

These reforms will also help harness the full potential of new technologies, notably in the areas of artificial intelligence and energy-efficiency. China’s digital infrastructure is well prepared to reap substantial gains from AI but care needs to be taken to mitigate labor market dislocations and guard against new financial stability risks.

Third area of focus: addressing high domestic debt levels. Years of high investment have left China with high public and corporate debt, leading to elevated risks. The government’s debt swap program helps in the short term by reducing financing pressures, but to minimize long-term costs, unsustainable local government debt will need to be restructured. This should be combined with reforms to further strengthen financial sector oversight and enhance fiscal discipline and transparency.

What would be the benefits? Making material progress on these three essential priorities could substantially raise China’s GDP level—by about 2.5 percent by 2030, creating some 18 million new jobs and simultaneously reducing deflationary pressures. It would also help deliver an appreciation of the real exchange rate and a smaller current account surplus.

A better-balanced Chinese economy, internally and externally, also means a stronger and healthier global economy.

In sum, China has the opportunity to reach a new stage in its economic development, in which its growth engine switches from investment and exports to domestic consumption and its economy reorients from goods to services. Seizing this opportunity requires brave choices and determined policy action.

We look forward to continuing our close engagement with the authorities in support of their efforts to build a more balanced and inclusive economy.

Thank you.