How China’s Economy Can Pivot to Consumption-led Growth

IMF News, February 18, 2026

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China’s economy expanded by 5 percent in 2025.
The IMF projects 4.5 percent growth this year, up 0.3 percentage points from the October forecast.
Growth has been supported by robust exports and fiscal stimulus, but domestic demand remains subdued.
The protracted property slump and a weak social safety net have reduced consumers’ willingness to spend, generating deflationary pressures and making growth increasingly dependent on external demand.
China accounts for about 30 percent of global growth.

Pivoting to consumption-led growth is the overarching policy priority because relying on ever higher exports is not a durable strategy.
The 15th Five-Year Plan (2026-30) prioritizes increasing consumption as a driver of economic growth.
A gradually increasing retirement age, building on the 2024 reform, will help reduce the drag from a contracting labor force and boost economic prospects.

Recommend a comprehensive macroeconomic policy package focused on:
- Additional fiscal stimulus.
- Further monetary policy easing.
- Greater exchange rate flexibility.
Expected outcomes: lift inflation to a healthy level, raise domestic demand, and reduce dependence on exports.
Rebalance fiscal composition by paring back public investment and industrial policies supporting specific industries:
- This would free budgetary resources to increase social spending.
- It would improve resource allocation and potentially increase productivity.
- It would allow fiscal support to address the property sector contraction, including supporting buyers of unfinished housing.

Fiscal policy should prioritize strengthening social protection (healthcare, pensions, unemployment benefits, social assistance) to increase consumers’ confidence to spend.
Scope exists for increased benefits and broader coverage across these areas to reduce precautionary saving.
Evidence cited: 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.
Hukou reform: easing household registration requirements can significantly lower saving rates.
- Granting urban status to 200 million rural migrants could raise the consumption-to-GDP ratio by an additional 0.6 percentage points.
Tax policy: making taxes on labor more progressive and strengthening taxes on capital can reduce inequality and increase disposable income for lower-income people who tend to spend more, encouraging additional consumption.

Taken together, the IMF’s policy recommendations could boost the consumption-to-GDP ratio by about 4 percentage points over five years.
A better-balanced, consumption-led growth model would make China less dependent on external demand and increase resilience, with positive spillovers for the global economy.

By Daniel Garcia-Macia, Sonali Jain-Chandra, Siddharth Kothari, Yizhi Xu, February 18, 2026 — IMF News