FT: IMF calls on China to halve industrial subsidies

Key topics:IMF urges China to cut state support for industry amid overcapacity concerns.China’s industrial policies cause trade tensions and weak domestic demand.IMF recommends shift to consumption-led growth and social welfare reforms..Sign up for your early morning brew of the BizNews Insider to keep you up to speed with the content that matters. The newsletter will land in your inbox at 5:30am weekdays. Register here.Support South Africa’s bastion of independent journalism, offering balanced insights on investments, business, and the political economy, by joining BizNews Premium. Register here.If you prefer WhatsApp for updates, sign up to the BizNews channel here..By Arjun Neil Alim in Hong Kong and Thomas Hale in Shanghai.The IMF has called for China to slash state support for industry as international concerns mount about overcapacity in the world’s second-largest economy.The fund estimated that China spends about 4 per cent of its GDP subsidising companies in critical sectors, and said it should reduce that by 2 percentage points in the medium term.China’s industrial policies “are giving rise to international spillovers and pressures” and have combined with weak domestic demand to make China “more reliant on manufacturing exports as a source of growth”, the fund said.“Industrial policy has enabled tech innovation in some sectors, but overall the impact on the economy has been negative,” said Sonali Jain-Chandra, mission chief at the IMF for China and Asia Pacific, pointing to “resource misallocation” and “overspending”. The fund has previously called on China to scale back its industrial policies but has not estimated by how much..Read more:. China offloads record $42.6bn in US stocks and bonds amid rising tensions.The recommendations in an IMF report come after China has ramped up exports of manufactured goods, including higher-value items such as EVs, which has stirred tensions with the west over its subsidies.China’s global trade surplus in goods surpassed $1tn last year. World leaders such as France’s Emmanuel Macron have bemoaned “unbearable imbalances” in trade.The IMF welcomed an initiative from Beijing to reduce “involution”, a term China uses to refer to excessive price competition, but said it should further “clarify its strategy”.Policymakers in China are battling challenges including the threat of deflation, weak consumer confidence, high youth unemployment and a sustained property slowdown that shows few signs of easing.The IMF in 2024 called on China to spend 5.5 per cent of GDP over four years to combat the property slowdown by completing unfinished housing and supporting unviable developers’ exit from the sector.In the report published this week, it called for 5 per cent of GDP over three years from the central government. “The proposition is essentially the same,” said Thomas Helbling, IMF deputy director for Asia Pacific, who said unfinished properties and the consequences for Chinese investor confidence remained the “elephant in the room”.“The hangover from the boom has not been addressed,” he said.The IMF also urged China to move towards a “consumption-led growth” model for its economy. It recommended that China loosen restrictions on internal migrants’ access to social welfare, move to a more progressive taxation system and boost pensions.In their response to the IMF report, Chinese authorities said their industrial subsidies were not as large scale as estimates suggested..Read more:.IMF to SA: Economy’s ‘green shoots’ are real, but the debt trap looms large.Zhang Zhengxin, the IMF’s executive director for China, a role nominated by the member country, said the nation “believe[s] estimates of the scale and impact of China’s industrial policy are significantly overstated”.“China’s industrial policies are open and transparent, and apply equally to state-owned enterprises, private firms, and foreign-invested entities,” Zhang said..© 2026 The Financial Times Ltd.

FT: IMF calls on China to halve industrial subsidies

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