BEIJING — China’s economy faces growing strains from weak domestic demand and heavy export dependence, the International Monetary Fund warned late Wednesday. The fund urged Beijing to enact bold reforms shifting resources toward households and away from state-led investment.

Resilience has marked China’s performance amid global shocks. Strong exports and fiscal stimulus propelled 5% growth in 2025. The IMF now forecasts 4.5% expansion this year, a 0.3 percentage point increase from its October estimate. Still, officials said the model powering the world’s second-largest economy shows cracks.

Domestic demand stays sluggish. A property sector slump and thin social safety nets have eroded consumer confidence. Low inflation versus trading partners weakened the real exchange rate. That fueled exports and pushed the current account surplus to an estimated 3.3% of GDP, according to the IMF statement.

Challenges mount ahead. Inflation should rise only slowly. Deflationary pressures linger. Medium-term growth faces headwinds from a shrinking labor force, falling investment returns and slowing productivity, the fund said.

To counter these trends, the IMF prescribed a macroeconomic overhaul. Stronger fiscal stimulus takes center stage, backed by looser monetary policy and more flexible exchange rates. The goal: spark household spending and ease export reliance.

Spending priorities must change. Public investment and industrial policies have dominated too long. Funds should flow instead to social protections and property fixes, including aid for buyers stuck with unfinished homes, officials recommended.

Beefing up health care, pensions, unemployment aid and social assistance would lift household spirits. Reforms to the hukou system — the household registration rules blocking migrants from full urban services — could unlock more spending power.

Tax tweaks offer another lever. Steeper levies on labor for high earners, paired with heavier capital taxes, would curb inequality. Lower-income groups would see higher take-home pay, fueling consumption, the IMF said.

These steps pack punch. Together, they promise a major rebalance. Consumption’s share of GDP could climb 4 percentage points in five years. That shift would steady growth as old drivers fade.

China’s leaders face choices. Exports have delivered, but vulnerabilities grow. Property woes drag on confidence. Demographic shifts loom large. The IMF’s blueprint aims to pivot toward sustainable demand from within.