IMF says China stimulus too small, yuan undervalued

China must deliver much bigger fiscal stimulus while its economy "teeters on deflation," a senior International Monetary Fund official said on Thursday, October 15. "We welcome the fiscal support China has provided to the economy. But in our view, it is quite limited in size and scope," Krishna Srinivasan, director of the IMF's Asia and Pacific Department, told a press conference in Bangkok, Reuters reported.finance.yahoo.com

The comments came days after the fund lowered its forecast for China. Its World Economic Outlook projects growth slowing to 4.5% in 2026, down from 5.0% in 2025, and then to 4.0% in 2027 because of weak domestic demand. The report, released on Tuesday, cut the IMF's July projection slightly and pointed to higher crude prices, "protracted uncertainty and structural headwinds".uk.finance.yahoo.com+1

Growth still led by exports

"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," Srinivasan said. He added that "a lot more is needed in terms of fiscal stimulus in the near term until the economy reflates." He also said the property crisis has "lingered for too long" and repeated the IMF's call for steps to repair real estate, lift household confidence and build social safety nets.finance.yahoo.com

He said Beijing's recent package, which some called a "mini-stimulus," is not enough. "They need to be a lot more ambitious to address the imbalances," he told Bloomberg. Alicia Garcia-Herrero of Natixis told AFP that the measures form a "modest, targeted" package that should support investment in the fourth quarter.bloomberg.com+1

Yuan debate intensifies

Srinivasan said the yuan's weakness in real terms "reflects the symptom" of domestic imbalances. China's very low inflation has pushed down the currency's real effective exchange rate, and "that automatically provides a competitiveness boost." The IMF's latest 2026 assessment puts the yuan's undervaluation at 17.3% to 25.3%, with a midpoint of 21.3%.bloomberg.com

Pressure on the currency is growing because China is on track for a record trade surplus this year, above the $1.2 trillion it posted in 2025. Leaders including German Chancellor Friedrich Merz have pushed Beijing to let the yuan strengthen. Last week, the People's Bank of China published a lengthy document defending how it manages the currency. The central bank argued that the IMF's finding applies to the real rate, not the nominal one, and does not justify engineering yuan appreciation.uk.finance.yahoo.com

Markets and borrowing

The offshore yuan firmed against the dollar on Thursday and stayed near its strongest level since July 2022. Through September, local governments had used only 81% of their annual special bond quota, which points to faster bond issuance in the fourth quarter. The IMF did not say how large a new stimulus package should be or when it should come.fakti.bg+1