IMF Tells China: Cut Exports, Lift Consumption, 'Let Zombies Go'

The International Monetary Fund urged China on Wednesday to make the “brave choice” – speed up major reforms and shift toward a consumption-led economy, to curb its reliance on debt-driven exports and a growing global backlash.

“China is simply too big to generate much (more) growth from exports, and continuing to depend on export-led growth risks furthering global trade tensions,” IMF managing director Kristalina Georgieva told a press conference concluding the Fund’s regular review of the $19 trillion economy.

“It requires brave choices and determined policy action,” Georgieva added, while pressing Chinese policymakers to adopt a comprehensive macroeconomic policy package with additional stimulus and greater monetary easing, alongside targeted steps to rein in local government debt, resolve its protracted property crisis and improve social welfare provision.

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Increased social spending and accelerating reform of China’s internal passport “Hukou” system, which has largely tethered people’s destinies to their place of origin since the 1950s, could boost consumption by up to 3 percentage points of GDP, she added.

Meanwhile, bringing an end to the property crisis within the next three years – which weighs heavily on domestic demand, as some 70% of Chinese household wealth is in real estate – would require China to spend 5% of GDP, the IMF forecasts.

“We have been urging more attention for closure on this problem. We call them ‘zombie firms’. Let the zombies go away,” Georgieva said, encouraging officials to speed up the exit of unviable property developers from the market.

Beijing closely watches the IMF’s “Article IV” review for approval or criticism of its economic management, with its endorsement serving as a valuable counter amid rising tensions with major trading partners.

Flood of exports spurring trade tensions

Georgieva said it was not in China’s interests to provoke its trading partners to impose curbs on Chinese imports because of fears that a flood of cheap goods will devastate their manufacturing sectors.

The IMF upgraded its China growth forecast for 2025 to 5%, from 4.8%, citing the production powerhouse’s strong outbound shipments, also lifting its 2026 forecast to 4.5%, from 4.2%.

Net exports constituted 1.1% of China’s 5% growth for this year, the IMF chief said, while adding that the Chinese economy was on course to contribute 30% of global growth.

China has posted a record $1 trillion trade surplus for the first time, November trade data showed, sparking criticism that its slowing economy was being propped up by dominating an ever-growing share of the global industrial value chain and flooding emerging markets with cheap goods diverted from the US due to President Donald Trump’s tariffs that deny their manufacturing sectors a chance to develop.

Economists have also accused Beijing of benefiting for too long from an undervalued renminbi.

“We haven’t recommended explicit action to appreciate the RMB,” Georgieva said. “We would like to see China with an exchange rate that is flexible both ways, up and down.”

French President Emmanuel Macron said on Sunday he had threatened Beijing with tariffs during his state visit last week, which coincided with the European Commission unveiling plans to strengthen Europe’s resilience against dumped goods and unfair subsidies granted by trading partners to their manufacturers.

That said, Trump’s tariffs appear to have done little to slow the production powerhouse, which has recorded a monthly trade surplus exceeding $100 billion six times since he returned to the White House in January, compared with just once in 2024.

‘Follow market forces, trim state spending’

Georgieva talked up China’s preparedness for artificial intelligence and other transformative technologies, but urged Beijing to give private firms a greater voice in shaping their development.

More broadly, “public investment and industrial policies in support of selected firms and sectors should be scaled back”.

“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 real estate sector,” Georgieva added.

China’s penchant for industrial policy constitutes a 1.2% drag on productivity, according to IMF calculations.

But reducing the role of industrial policy will not come naturally to China’s policymakers, who oversee a planned economy.

Georgieva said greater emphasis should be placed on China’s young people, rather than on the current model, in which households save large sums that state banks predominantly channel into infrastructure and state-backed firms.

“You (young people) need to help your mothers, fathers, grandmothers and grandfathers change their attitude towards one where it is patriotic to spend money and to lead China’s domestic consumption,” she said.