1. [para. 1][para. 2][para. 3] In September 2026, the International Monetary Fund released a report titled "Toward a New Model of Economic Growth in China," while Robert Hall and Michael Woodford were awarded the Nobel Prize in Economics. According to the author, the theoretical framework pioneered by these two scholars provides the perfect lens for understanding both the IMF report and its inherent limitations, especially the pressing question of why it is so difficult for Beijing to implement the prescribed direction.
2. [para. 4][para. 5] The IMF report exhaustively details China's growth since 1978 and diagnoses its current malaise, including diminishing investment returns, a protracted real estate slump, shrinking room for public sector expansion, geopolitical friction, and a demographic crisis. Its prescription involves a fundamental shift from supply-side efficiency to demand-side expansion, which includes boosting domestic consumption, expanding the service sector, scaling back industrial policy, and aggressively clearing local government debt.
3. [para. 6][para. 7][para. 8][para. 9] While the IMF's quantitative work—measuring capital misallocation and analyzing land transactions—is stellar, its policy checklist is entirely familiar to Beijing, as these recommendations have been central to China's domestic agenda for years. Even prescriptions bordering on the Washington Consensus are already in motion. The true divide between the IMF and Beijing is not a lack of awareness, but rather the speed of reform, who foots the bill, and whether dismantling the old economic engine will inadvertently destroy the more efficient parts of the economy.
4. [para. 10][para. 11][para. 12] The core issue is funding. Raising the basic rural pension to 1,000 yuan ($149) a month would cost roughly 200 billion yuan annually; subsidizing existing mortgages to halve interest burdens would cost about 500 billion yuan; and equalizing public services could add 2 trillion yuan in new spending. While manageable against China's 140 trillion yuan GDP, shifting this capital requires a brutal reallocation of resources, pitting powerful sectors and vested interests against each other in a highly centralized system.
5. [para. 13][para. 14][para. 15][para. 16][para. 17] Hall and Woodford's insights show that policy is a game of rules, expectations, and institutional bargaining. In early decades, reforms were largely Pareto improvements, creating a powerful consensus. Today, that space has narrowed, requiring taking money from entrenched stakeholders and increasing political friction. China's institutional inertia reflexively favors public spending on physical investment—roads, bridges, power grids—rather than cash subsidies, which lack institutional consensus, as demonstrated by the absence of massive stimulus checks during the pandemic.
6. [para. 18][para. 19] The IMF likely underestimates the collateral damage of clearing inefficient sectors. It assumes capital will naturally flow to efficient sectors, but in China's current economy, the old and new sectors are not isolated. A contraction in real estate and local government spending would immediately strangle construction, finance, local services, and private enterprises, as the state and private sectors are deeply intertwined through cross-shareholding, supply chains, and local government guidance funds.
7. [para. 20][para. 21][para. 22][para. 23][para. 24][para. 25][para. 26][para. 27] Applying the Nobel laureates' perspective yields three stark judgments. First, the inertia of the old growth model is stronger than IMF models suggest; Beijing prefers testing new investments in green energy, computing infrastructure, and the power grid. Second, the private and state sectors are symbiotic; a zero-sum approach demanding state concessions without clear institutional boundaries will drive private capital away. Third, market clearing in China is a government balance sheet problem—the government is the referee, debtor, creditor, and guarantor, fusing local financing platforms, SOEs, banks, and the property market. Until ultimate loss bearers and liability restructuring are clear, all players will choose to wait.
8. [para. 28] The IMF views China's economy through the lens of macroeconomic accounting, while Beijing views it through the lens of institutional stability. Although the IMF's recommendations are mathematically sound, they underestimate the agonizing friction of dismantling a political economy that has functioned for decades.
9. [para. 29][para. 30] The author, Zhang Lin, is deputy dean and chief macro researcher at Far East Credit Rating Research Institute and a member of The Ronald Coase Institute. The views expressed in this third-party article are the author's own and do not necessarily reflect the positions of Caixin.
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