China’s Surplus Swells as IMF Warns Global Imbalances Are Reaching Dangerous Levels

Global economic imbalances widened further in 2025, with China recording its largest expansion in current account surplus in more than 25 years, prompting the International Monetary Fund (IMF) to warn that persistent domestic distortions in the world’s largest economies are raising financial vulnerabilities and intensifying trade tensions.

In its latest External Sector Report, the IMF said China’s current account surplus expanded by approximately US$300 billion last year to around 0.6% of global GDP, marking the biggest absolute increase since at least 2000. Although the United States narrowed its current account deficit by US$69 billion, it remained the world’s largest external deficit at 0.9% of global GDP, exceeding the combined surpluses of China and the euro area.

The Fund noted that the widening in global imbalances comes against the backdrop of heightened trade tensions and significant changes in US trade policy. While tariffs have reshaped global trade flows—reducing US imports from China while increasing imports from other countries—they have not historically had a clear effect on overall current account balances.

Beyond headline figures, the IMF said so-called “excess” external imbalances—those driven by domestic policy distortions rather than economic fundamentals—also increased during the year, with China and the United States accounting for the largest contributions.

China’s growing surplus was attributed to weakening domestic investment, particularly in the property sector and, more recently, manufacturing and infrastructure, alongside persistently high household savings linked to limited social safety nets. In contrast, the United States’ structural deficit continues to reflect chronically low national savings and sustained fiscal deficits.

The IMF warned that while large current account imbalances do not necessarily trigger immediate crises, prolonged excess surpluses and deficits can signal inefficient capital allocation, heighten financial vulnerabilities and increase the likelihood of abrupt market corrections, including capital flight, asset price declines and weaker economic growth.

The Fund argued that coordinated policy action among the world’s major economies—including stronger domestic demand in surplus countries and fiscal consolidation in deficit economies—would offer the most effective path toward reducing global imbalances while supporting global growth.

However, it added that even unilateral domestic reforms remain worthwhile, as addressing structural distortions would strengthen individual economies and gradually reduce excess global imbalances, despite the potential for short-term market volatility.

Without decisive policy adjustments, the IMF cautioned, underlying vulnerabilities will continue to build beneath the surface of the global economy, increasing the risk of a more disruptive correction in the years ahead.