China grew 5% in 2025. Officials are now leaning on big public spending to keep the engine humming.

Why growth is still holding up

The headline number appears solid. The International Monetary Fund says China expanded by about 5 percent last year and projects growth of roughly 4.5 percent in 2026.

However, a closer look reveals a different picture. Exports and government stimulus have carried much of the load. Private consumption — the part of the economy that usually signals broad-based, sustainable strength — has been weak for years.

The IMF points to a drawn-out property slump and a thin social safety net as major reasons households are reluctant to spend. Those problems have helped create deflationary pressure, which in turn makes the economy more dependent on external demand and on government-led investment.

How policymakers are responding

Over the past year Chinese authorities adopted a noticeably more expansionary fiscal stance. That showed up as targeted subsidies, stepped-up spending in public projects and a looser monetary approach.

So the state has effectively swapped some private consumption for public spending. The result: roads, rails and other projects are getting money at a time consumers are holding back.

The IMF recommends a different mix. Its briefing argues for additional fiscal support aimed at lifting domestic demand, backed by further monetary easing and a more flexible exchange rate to help inflation recover to a healthier level. The fund also urges a change in how fiscal money is spent — less earmarked for narrow industrial policies and more for social protection.

Why social spending matters

People tend to save because they worry about unexpected shocks. The IMF says the weak social safety net — limited coverage of healthcare, pensions and unemployment benefits — pushes many households to sock away cash instead of buying goods and services.

Strengthening those programs would give people more confidence to spend, the IMF argues. It even points to research showing that boosting social spending in rural areas could materially reduce precautionary savings and lift consumption over time.

That matters for housing too. The property sector has been a long drag on confidence. The IMF recommends support for buyers who are stuck with unfinished housing projects, a measure intended to restore faith in the market and free homeowners to re-engage as consumers.

Investment vs. Consumption: a trade-off

Chinese fiscal policy has leaned heavily on investment in recent years. Public projects and industry-focused programs helped blunt shocks and kept growth positive after the pandemic.

But the IMF cautions that keeping resources tied up in targeted industrial policies can lower overall productivity. Redirecting some of that money toward social spending could raise longer-term growth by letting market forces allocate capital more efficiently.

This shift is a difficult political and economic challenge. Governments like visible projects — bridges, subways, factories — because they create jobs and show immediate results. Yet the IMF suggests that freeing up budget space for social programs and measures to revive housing demand would do more to sustain consumption over years, not months.

Labor force trends and pension reform

Demographics are part of the story. The IMF notes that China’s labor force is shrinking and that policymakers already started to address that through a 2024 retirement-age reform.

The 15th Five-Year Plan for 2026–30 also places higher priority on consumption as a driver of growth. Building on earlier retirement changes, the plan hopes to blunt some of the drag from a smaller working-age population.

But reforms take time. Raising participation and reshaping benefits won't flip consumer behavior overnight. Households that tightened their belts during the property collapse are likely to stay cautious until they see clear, durable improvements in incomes and protections.

Monetary room and exchange-rate flexibility

The IMF calls for looser monetary policy to support domestic demand. That means central bank moves that make borrowing cheaper and spare businesses and households some cost pressure.

At the same time, the fund wants more exchange-rate flexibility. A somewhat softer currency can help lift prices and reduce the danger of persistent deflation — which has been one reason consumers delay purchases.

There’s a balance to strike. Too much easing risks asset bubbles or financial instability. Too little leaves the economy stuck in a cycle where weak spending begets weak growth.

What this mix means for markets and trade

Right now, China's growth story still looks export-heavy. That means global demand for Chinese goods remains important for the rest of the world, even as Beijing tries to coax domestic spending back to life.

For investors, the shift implies more policy support for infrastructure and state-led projects in the short run. That tends to favor companies tied to construction, heavy equipment and state-owned sectors. For households and domestic service sectors, recovery will depend on whether social and housing measures actually raise confidence.

Risks and the path ahead

There are clear risks. If policymakers keep leaning on public investment without strengthening social protections, consumption may lag indefinitely and debt burdens could rise.

Conversely, a forceful macro package that rebalances spending toward households could lift inflation to a normal range, reduce reliance on exports and make growth more resilient. The IMF lays out both the tools and the trade-offs.

In short, China's short-term growth will probably continue to rely on government spending and exports, but achieving consumption-led growth will need more substantial fiscal reforms.fety nets and a housing market that regains trust.

Related Articles

The International Monetary Fund projects China will grow about 4.5% in 2026.