The International Monetary Fund (IMF) has issued sharp criticism of China's current economic policies, urging Beijing to undertake urgent structural reforms to reduce its over-reliance on exports as the primary driver of growth and instead shift towards boosting domestic consumption. This came in a statement issued by the IMF's Executive Board at the conclusion of its annual Article IV consultations, in which the Fund asserted that current policies are wasting domestic resources and creating tangible negative repercussions for China's trading partners worldwide.
Currency and competitive advantage debate
In the report, IMF experts noted that the exchange rate of the Chinese currency (the yuan) plays a pivotal role in current trade imbalances. The IMF estimated that the real effective exchange rate of the yuan was undervalued by an average of 16% over the past year. This undervaluation gives Chinese exports a significant price advantage in global markets, provoking resentment among other major economies that view it as unfair competition detrimental to their domestic industries.
Economic context: The real estate crisis and weak demand
To understand the background of these criticisms, one must consider China's current economic context. For decades, China has relied on a model based on heavy investment in infrastructure and export-oriented manufacturing. However, this model has recently faced significant challenges, most notably the real estate crisis , which eroded household wealth and eroded consumer confidence. This situation has led households to increase their savings rather than spend, weakening domestic demand and making the economy more dependent on foreign markets to absorb surplus industrial production.
Global repercussions and fears of "excess capacity"
The IMF's warnings take on particular significance amid escalating global trade tensions. Western countries, led by the United States and the European Union, are increasingly expressing concern about what they describe as China's "excess production capacity," especially in the green technology and electric vehicle sectors. Analysts believe that China's continued flow of cheap exports, bolstered by a weak currency, could trigger protectionist countermeasures, threatening the stability of the global trading system.
China's response and growth forecasts
In contrast, China's representative to the IMF rejected these assessments, defending his country's policies. The Chinese side asserted that the projected growth and strength of its exports in 2025 and beyond were not due to currency manipulation or unfair subsidies, but rather a natural outcome of innovation capacity of Chinese companies and the efficiency of their supply chains.
Looking ahead, the International Monetary Fund maintained its forecast for Chinese economic growth at 4.5% for this year, but warned that risks remain tilted to the downside, particularly if domestic demand remains weak and the global economy slows more than expected.
