The International Monetary Fund confronts a deepening legitimacy crisis as its traditional neoliberal prescriptions face irrelevance in the Trump era and prove inadequate for addressing China’s unique economic challenges. This crisis emerges as the IMF urges Beijing to abandon its state-driven industrial model while navigating a global landscape transformed by geopolitical adventurism and economic nationalism.
The Fund’s latest assessment identifies China’s export-heavy growth strategy as fundamentally distorting global trade patterns. IMF executives specifically highlight Beijing’s allocation of approximately 4% of GDP to corporate subsidies in critical sectors, creating worldwide economic imbalances. They emphasize that transitioning to consumption-led growth represents China’s ‘overarching priority,’ noting that the nation’s substantial current-account surplus generates ‘adverse spillovers to trading partners.’
China’s economic dilemmas extend beyond trade imbalances. IMF Asia Pacific Deputy Director Thomas Helbling identifies the property sector crisis as the ‘elephant in the room,’ with unfinished properties severely undermining investor confidence. The institution advocates for comprehensive structural reforms including central government financing to address presold unfinished housing and strengthened social protection systems to reduce precautionary savings.
BNP Paribas strategist Chi Lo observes China’s economy remains stuck in a liquidity trap, requiring fiscal policy to ‘do the heavy lifting’ in reviving public confidence. Despite recognizing the need for rebalancing since before Xi Jinping’s 2013 rise to power, progress toward demand-led domestic growth remains sluggish.
The core challenge involves convincing 1.4 billion citizens to reduce savings and increase spending—a transformation requiring robust social safety nets that have thus far been underdeveloped. With approximately 70% of household wealth tied to real estate, property sector stabilization becomes crucial for maintaining 5% growth targets.
IMF China economist Sonali Jain-Chandra notes China’s remarkable development has ‘relied too much on investment as opposed to consumption,’ identifying the service sector as an ‘underexploited driver of growth.’ However, credit expansion remains subdued, with November 2025 marking the first consecutive monthly household loan contraction since records began in 2005.
The People’s Bank of China faces political constraints in addressing these challenges, including concerns that yuan depreciation could exacerbate trade tensions with Washington. Meanwhile, Trump administration policies—including tariffs and economic coercion—further complicate China’s transition while rendering traditional economic theories increasingly inadequate for contemporary global dynamics.