On 18 February 2026 an IMF country focus with the title How China’s Economy Can Pivot to Consumption-led Growth, written by D. Garcia-Macia, S. Jain-Chandra, S. Kothari and Y. Xu, looked at way in which China could stimulate domestic consumption.
The authors note that China’s economy remains a major driver of global growth and expanded by 5% in 2025. The IMF projects 4.5% growth for China in 2026. The economy is facing challenges as domestic demand has been subdued by a long property slump and a weak social safety net. Growth has therefore been dependent on external demand, but China cannot depend on increasing exports to drive sustainable growth in the future.
A policy priority for China is therefore to turn to consumption-led growth. Recent measures have included targeted social subsidies, a decrease in the over-investment in certain industries, and monetary easing. A gradual increase in the retirement age is reducing the effects of a contracting labour force and supporting economic growth.
The IMF recommends a package of measures focusing on more fiscal stimulus, with further monetary policy easing. This could increase domestic demand and reduce the dependency of the economy on exports. Industrial policies that support specific industries should be reduced, allowing the allocation of resources to follow the market forces. This could create the space to increase social spending support the property sector.
The IMF considers that China’s policymakers should give priority to strengthening social protection, as this would give consumers the confidence to spend a greater part of their income. There is scope for increased benefits and broader coverage in healthcare, pensions, unemployment benefits and social assistance. Support from these sources would allow lower income groups to consume more, as they would not need to save excessively to protect against unexpected events.
The current system of household registration classifying residents as urban or rural can mean that migrant workers moving from rural areas to cities are excluded access to some social benefits. The authors note that a relaxation of these requirements could increase access of these workers to benefits and enable them to lower their savings rates. This could increase the consumption of around 200 million people, and the authors estimate that this could increase China’s consumption-to-GDP ratio by around 0.6 percentage points.
If taxes on labour are made more progressive, lower income groups could be left with more disposable income. This would be beneficial for the economy because those on lower incomes generally spend a greater portion of their income. This would represent a further boost for domestic consumption.
The authors conclude that the implementation of the IMF’s policy recommendations could rebalance the economy towards more domestic consumption. The consumption-to-GDP ratio could be increased by approximately 4 percentage points in the next five years. This would mean that economic growth becomes less dependent on external demand and would be more sustainable.
