Sustainable growth path: China needs to do more to rebalance its economy

Global economic trends over the past year were shaped by one force above all: United States (US) President Donald Trump’s decision to rework trade policy by focusing on tariffs. But if he intended to force China, the world’s export superpower, into retreating from global markets, then he has failed. The country’s trade surplus crossed a record $1 trillion in the first 11 months of 2025. If anything, economic planners in Beijing should have hoped for a little more effect of the tariffs than they actually felt. As it stands, however, the year has seen China’s dependence on export as a prop for its economy only grow.

 

There is a gloomy consensus, incorporating both the International Monetary Fund (IMF) and the secretive leadership in the Forbidden City, that domestic demand in the world’s second-largest economy is simply not stepping up to replace exports as a growth driver. Last week, the managing director of the IMF, Kristalina Georgieva, told reporters that the country needed to speed up its decades-long process of rebalancing, and to increase the salience of private consumption in its economy. Its economy is now “simply too big” to rely on exports, she said. She is right in the broadest of senses: The missing factor not just in its own economy, but the entire world’s, is the Chinese consumer. Households on the mainland need to consume and import more — that is the only way that investment and demand will reach their potential levels.

 

This missing factor is also worrying the politburo of the Communist Party of China. During its recent meeting it pledged to “adhere to domestic demand as the main driver” and to “build a strong domestic market”. The biggest problem is that consumption has cooled for the entire second half of this year after the first half was buoyed up by a series of subsidy payments, which have now petered out. Retail sales are growing, but more slowly than the overall figure. For the first time in two decades, household loans have contracted for two straight months, as uncertain Chinese citizens have begun to worry about amassing debt and have started to pay it down instead. Notably, for the investment-heavy economy, fixed-asset capital expenditure went down by 1.7 per cent in the first 10 months of 2026.

 

The government in Beijing has been far too hesitant in carrying out essential reform, and is now facing the consequences of that delay. The years-long crisis in the country’s property market continues to be the biggest drag on consumer confidence. The problems in that sector keep on coming. Late last month, one of the few large boom-time developers still standing revealed state-controlled banks were withdrawing their support of its $50 billion loan book. Chinese households used to rely on property to build up savings, given that interest rates were kept artificially low by the investment-obsessed government. The removal of the one safe path to appreciation in asset prices for the average household has served to torpedo consumer confidence and demand. Meanwhile, the private sector, other than favoured sectors like artificial intelligence, remains constrained by excessive government oversight and control. The steps to complete China’s rebalancing are known. What Beijing lacks is the political will to do what it must.