IMF Tells Beijing: Current Stimulus Falls Short as China Flirts With Deflation

BANGKOK — China must roll out far larger fiscal measures. Its economy stands at the edge of deflation. Growth keeps slowing. Domestic demand refuses to recover.

That blunt assessment came Thursday from Krishna Srinivasan, the International Monetary Fund’s director for Asia and the Pacific. Speaking at the IMF and World Bank annual meetings, he welcomed recent support from Beijing. But he called it quite limited in size and scope.

“We think that a lot more is needed in terms of fiscal stimulus in the near term until the economy reflates,” Srinivasan said, according to a Reuters report. He pointed to an economy “teetering on deflation” that requires higher prices to regain balance.

The comments land as investors and officials scan every signal from Beijing. China’s latest steps — including fresh debt quotas and targeted easing — have delivered some lift. Yet they haven’t resolved deeper weaknesses. Property troubles drag on. Households stay cautious. Factories churn out goods for export while local spending lags.

The IMF now sees Chinese growth at 4.5% this year. That marks a drop from 5% in 2025. The forecast points to a further slide to 4% in 2027. Most of that expansion still traces back to external demand. The long-promised shift toward consumption-led growth? It hasn’t taken hold.

Srinivasan didn’t mince words. “Most of the growth in China is explained by external demand, and so the rebalancing, which we’ve been talking about for some time, has not really materialized.” The property crisis has lingered far too long. Fixing it demands steps to restore household confidence. Stronger social safety nets would help too.

Beijing has moved in recent weeks. Authorities issued 550 billion yuan in unused government debt quotas earlier this month. The money targets local government operations and infrastructure projects. The State Council pledged more proactive fiscal policy to hit annual targets. Late September brought interest-rate cuts and mortgage relief.

Yet these moves register as incremental. Markets reacted with tempered enthusiasm at best. Analysts note the package aims to secure the 4.5%-5% full-year growth goal rather than spark a broad revival. Third-quarter GDP likely rose around 4.4%. That’s better than the second quarter but still subdued. A separate Reuters analysis highlights how stimulus supports the target without delivering excess momentum.

The IMF’s message carries weight. It echoes earlier calls. In 2025 Srinivasan urged shifting fiscal spending away from industrial policy toward consumption measures. Deflation pressures persisted then. Uncertainty ran high. The pattern continues. Exports power ahead. A record trade surplus looms. But without stronger internal demand, imbalances widen.

Managing Director Kristalina Georgieva framed the issue globally just a day earlier. Surplus countries like China need to boost domestic consumption. Deficit nations should save more. Europe must invest in competitiveness. “To put it very simply, China needs to spend more, the US has to save more, and Europe has to invest more,” she said in a Reuters dispatch.

That rebalancing carries stakes beyond China’s borders. Persistent export reliance fans tensions with trading partners. It complicates global efforts to manage debt and inflation. Rising bond yields add pressure everywhere. The IMF dialed up urgency around fiscal consolidation in advanced economies. Delays only raise the eventual cost.

For China the property sector remains central. Years after the initial crackdown, its effects linger. Developer failures eroded trust. Home prices stay soft in many cities. Consumer confidence suffers. Until Beijing tackles this with comprehensive measures — not just targeted aid — households won’t spend freely.

Social safety nets offer one lever. Expanded unemployment support or pension enhancements could encourage risk-taking. Services sector revival matters too. Consumption there has underperformed manufacturing. Fiscal outlays aimed at these areas would address root causes more directly than additional factory subsidies.

The yuan picture tells its own story. A Bloomberg report highlighted how the currency sits undervalued in real terms. The gap reflects flagging domestic demand. IMF estimates place the undervaluation between 17% and 25%. Srinivasan has linked currency weakness directly to those internal imbalances. Stimulus that fails to lift consumption leaves the yuan vulnerable and trading partners frustrated.

Beijing faces hard choices. Bigger deficits carry risks. Local government finances already strain under hidden debts. Yet the alternative — prolonged weak demand and deflation — threatens a downward spiral. Prices fall. Real debt burdens rise. Investment and spending contract further.

So far officials signal caution. They favor measured steps over dramatic packages. Political considerations play a role. Leadership emphasizes stability and long-term reforms. But the data keeps flashing warning signs. Youth unemployment hovers high. Retail sales grow modestly. Fixed-asset investment outside manufacturing remains soft.

Global investors watch closely. Chinese stocks have swung on policy hints. Bonds price in limited monetary room as inflation picks up slightly. The central bank retains some tools but inflation limits aggressive rate cuts. That leaves fiscal policy as the main instrument. The IMF argues it must be wielded more forcefully.

And the clock ticks. Growth forecasts keep edging lower. External demand can’t carry the load forever. Geopolitical tensions complicate export markets. Tariffs and restrictions multiply. A consumption-driven model would insulate China better while easing pressures on the global system.

Whether Beijing heeds the call remains uncertain. Past patterns show gradual adjustment. Yet the language from Srinivasan and Georgieva grows sharper. Limited stimulus no longer suffices. The property overhang needs resolution. Household confidence demands concrete action.

The coming months will test priorities in Beijing. Annual growth targets loom. Markets seek clarity. The IMF has laid out its view clearly. Bigger, better-targeted fiscal support. Faster rebalancing. Policies that put consumers first. Anything less risks embedding weakness for years ahead.