China's growth model has largely run its course, IMF official says

Srinivasan warns of prolonged slowdown with weak domestic demand

Young, college-educated Chinese professionals are reading Mao Zedong’s early writings — not as nostalgia, but the way an earlier American generation might have read Studs Terkel: as someone who gave language to why the system grinds people down, according to Wall Street Journal Chief China Correspondent Lingling Wei.

The phenomenon speaks to how much the country’s decadeslong economic bargain has broken. For decades, the Chinese state offered a deal: work hard, buy an apartment, climb the economic ladder, stay out of politics. Tens of millions of young Chinese now find that deal off. Apartments are worth less than their parents paid. The ladder leads to grueling schedules and job titles that do not cover rent. Wei’s reporting also describes a burned-out graduate reading Mao in Shenzhen.

Krishna Srinivasan, the International Monetary Fund’s top Asia official, has put a formal diagnosis on the deterioration. In a new IMF book, “Toward a New Economic Growth Model for China,” Srinivasan argues the country’s growth model has “largely run its course.” Wei spoke with him ahead of the book’s launch last month.

The symptoms appear in property and consumer data. In Chengdu, a second-tier city in China’s southwest that once drew young professionals, secondary-market property prices have fallen at least 15% from their 2023 peak, according to Srinivasan. In Guangdong, China’s export powerhouse, retail sales dropped about 3% last year. Some buyers paid for apartments that were never delivered. Household wealth has evaporated, and with it, consumer confidence.

“What is holding consumption back,” Srinivasan said, “is that confidence is low.”

The IMF’s prescription sounds simple: Chinese consumers need to spend more and save less. The complication, Srinivasan said, is that families are not hoarding cash out of cultural habit. They save because a hospital bill could wipe them out, rural pensions are a pittance, and migrant workers in cities still cannot access urban social-safety-net programs.

“You can’t just wish for people to consume more,” he said. The state has to build the healthcare, pension, and unemployment systems that make it safe to save less. Trust, Srinivasan said, is “central,” and right now it runs through institutions that are not delivering.

The story extends beyond China’s borders. The country has built up enormous productive capacity while consumers pull back, so factories look abroad for buyers. The resulting export surge keeps Chinese goods cheap overseas and feeds trade tensions in Washington, Brussels, and beyond. Srinivasan called the export surge “the external manifestation of unresolved domestic imbalances.” Between 2019 and 2025, trade restrictions globally tripled, he noted. If the rest of the world won’t buy what China produces, then the old model of investing more, building more and exporting the surplus simply stops working. “It’s an incentive” for China to change its model, he said, “whether it’s from outside or from inside.”

Srinivasan described two scenarios. In one, Beijing overhauls incentives — from growth targets that push local officials to chase GDP at any cost, to a fiscal system that leaves provinces dependent on land sales, to industrial policies that favor producers over consumers. He called this a “divine coincidence”: the reforms that would rescue Chinese consumers are the same ones that would ease trade tensions abroad.

In the other scenario, Beijing does not act. “A prolonged slowdown with weak domestic demand and deflation,” Srinivasan said, is the outcome he worries about most. “The longer you wait, the bigger the problem becomes.”

The Mao reading groups, Wei reported, are likely to keep growing.

The same edition of the WSJ China newsletter carried several other items. Counterpoint Research data on the foldable smartphone market suggests an opportunity for Apple’s new iPhone Duo — if it can overcome competition from Chinese brands, in a market where China holds a leading position. Separately, the Trump administration is engaged in a multibillion-dollar, governmentwide effort to loosen Beijing’s chokehold on critical minerals, an effort that, the newsletter reported, is slowly starting to work.

Last week, the newsletter asked readers about the role of Peng Liyuan, Chinese leader Xi Jinping’s wife, and her evolution. Readers shared their thoughts:

“Peng Liyuan made a strong impression by speaking English with first lady Trump without needing an interpreter. She presents China as confident, open to the world, and easy to relate to. This approach quietly signals equality, not a student-teacher relationship. Her English skills are praised abroad, but talk about her language abilities and fashion is closely managed on Chinese platforms.” — Luis Reyes, Massachusetts

“Peng Liyuan’s influence extends beyond the PLA. She heads the so-called Shandong Clique, a faction comprising senior administrators, military figures and officials who share ties to Peng’s home province of Shandong or have advanced through her professional and personal network.” — David Chu, Connecticut

“Xi Jinping gripping his wife’s hand down the stairs in Washington was more than a display of physical caution; it was a vivid symbol of a regime regressing into court politics, where an isolated ruler trusts marriage over hollowed-out party institutions.” — Shinya Hanamura, Japan

“In monarchical or authoritarian governments, the issue of succession is of critical importance. Since China is not a monarchy but has an authoritarian structure (some may argue totalitarian), succession planning doesn’t follow a hereditary path but is decided within the party apparatus with limited visibility to the outside world. In such structures, the life partner of the current leader may find themselves in a precarious position.” — Eugene P. Grace, Pennsylvania

(Responses have been condensed and edited.)

The newsletter also reported that Cathy Sparks, whose first job at Nike was selling sneakers in an Oregon store, is now in charge of leading the company’s turnaround in China, its second-largest market. It is a daunting challenge: Nike’s revenue in China and Taiwan is down nearly 30% from its peak five years ago.