IMF Urges China to Reduce Industrial Subsidies Amid Record Trade Surplus

The International Monetary Fund (IMF) has called on China to significantly reduce its industrial subsidies, warning that its current levels are distorting the global economy and creating negative ripple effects for trading partners. This comes as China’s trade surplus reached a historic high of $1.2 trillion in 2025, despite facing trade barriers and restrictions from other nations.

IMF Concerns Over Subsidies and Overproduction

The IMF Executive Board, completing its annual economic review of China, stated that the country is currently spending approximately 4% of its gross domestic product (GDP) on subsidies for key industrial sectors [IMF PortWatch]. The IMF recommends lowering this to 2 percentage points in the medium to long term. This is the first time the IMF has provided specific figures for desired subsidy reductions.

The recommendation stems from China’s increasing exports of manufactured goods, including high-value items like electric vehicles (EVs), which has led to subsidy conflicts with Western countries. The IMF believes China’s industrial policy is having a “global ripple effect,” particularly as domestic demand within China remains sluggish, increasing its reliance on manufacturing exports for growth.

Shift to Consumption-Led Growth Urged

The IMF is also advocating for a shift in China’s economic model, away from an export-led approach. It argues that China’s large current account surplus is negatively impacting its trading partners [World Socialist Web Site]. Transforming to a consumption-led growth model is considered a top priority.

The IMF estimates China’s current account surplus reached 3.3% of GDP in 2025, more than double the 1.5% forecast in its 2024 report. Exports exceeded imports by $1.2 trillion (approximately 1,738 trillion won), marking the largest surplus in history. While the IMF projects the surplus to decrease to 2.2% of GDP by 2030, it still considers this figure significantly higher than the 0.9% deemed “normal.”

Guangzhou Port as a Hub for Record Exports

The record trade surplus is being facilitated by key ports like Guangzhou (Nansha), alongside Shanghai (Pudong), Ningbo, Tianjin Xin Gang, and Qingdao [IMF PortWatch]. Shipping containers are readily available for transport at the Guangzhou Port in the Nansha district of Guangdong province [World Socialist Web Site].

Exports to Southeast Asian countries increased by 13% last year, to the European Union by 8.4%, to Latin America by 7.4%, and to Africa by a substantial 26%. Notably, exports to Africa included purchases of goods previously not acquired, such as thousands of electric cars to Nigeria and nearly four times the amount of solar panels to Algeria compared to 2024. Steel shipments to Africa also rose by 39%.

Continued Export Growth

Overall exports increased by 5.5% in dollar terms compared to 2024, with December 2025 alone seeing a 6.6% increase, exceeding Bloomberg’s forecast of 3.1% and November’s growth rate of 5.9%. The December trade surplus reached $114 billion, the third-highest monthly level recorded, surpassed only by January and June of the same year.