IMF Warns China's Massive Export Reliance Risks Global Trade Friction Amid Record $1 Trillion Surplus
The head of the International Monetary Fund (IMF) has strongly urged China to address its economic imbalances, cautioning that an economy of its magnitude is now "too big" to depend primarily on exports as its key engine for expansion. IMF Managing Director Kristalina Georgieva warned that the nation's continued reliance on overseas demand could provoke stronger pushback and heighten global trade tensions with its trading partners.
This warning comes as Beijing announced that its 2025 trade surplus has already exceeded a record $\$1$ trillion. While shipments to the United States have decreased following the introduction of steeper tariffs under President Donald Trump, China's total exports to global markets have nevertheless continued to grow. This surge is also linked to the yuan’s real depreciation. Officials from the IMF noted that China’s relatively subdued inflation compared to its trading partners has contributed to a weaker yuan in real terms. This depreciation fuels export competitiveness, allowing China to boost shipments to regions including Africa, Latin America, Southeast Asia, and Europe, offsetting weaker demand from the U.S.
The core issue, according to the IMF, is a structural imbalance. Progress toward transitioning the economy away from an export- and infrastructure-led model has been hampered by a protracted real estate downturn and the economic impact of the pandemic, which have severely weighed on growth. Consequently, even with growth near $5\%$ expected for 2025 (and $4.5\%$ in 2026), Chinese households remain cautious, curbing consumer spending and imports.
Chinese leaders have previously highlighted the necessity of boosting domestic consumer spending. However, the country continues to promote high-tech manufacturing, leading to concerns about excess production in certain industries, such as automobiles. Forecasts suggest China's share of global exports could climb to $16.5\%$ by 2030, increasing from around $15\%$ currently, driven by sectors like electric vehicles and robotics.
To correct these internal and external imbalances, the IMF has called for bolder policy steps to encourage greater consumption. IMF officials argued that robust stimulus measures would reflate the economy, lift consumer prices, and lead to an appreciation of the real exchange rate. This would help close the growing external imbalance, with the current account surplus projected to reach $3.3\%$ of gross domestic product in 2025.
Adding to the currency debate, Goldman Sachs Group Inc. estimates that the yuan is significantly undervalued. According to the bank’s weighted average model, the currency is pegged at more than $20\%$ below its fair value. Goldman analysts, who consider the yuan one of their highest conviction trades, disagree with the argument that appreciation would harm export growth, asserting that the currency is "so deeply undervalued" that projected strengthening would still keep it in "inexpensive territory." The currency traded around $7.06$ per U.S. dollar recently, even though it is heading for its first annual gain in both onshore and offshore markets since 2021. The IMF encourages China to move toward a more flexible, market-based exchange rate that accurately reflects economic fundamentals.
