In remarks at the China Development Forum, International Monetary Fund First Deputy Managing Director Dan Katz highlighted the Middle East conflict as a new source of risk to the global economy, warning that a prolonged energy-price shock could force difficult trade-offs for fiscal and monetary authorities. He argued that China’s next phase of growth would require a stronger role for market forces and a rebalancing toward consumption and services, alongside reforms to improve resource allocation and productivity. Katz cautioned that broad energy caps and subsidy schemes can be fiscally costly and suppress price signals, potentially keeping energy demand and prices elevated for longer. For central banks, he stressed the high 'option value' of waiting for clarity where inflation expectations are firmly anchored, while noting that jurisdictions facing persistently high inflation may need to respond faster, and urged all central banks to articulate reaction functions with scenario analysis. On China, he pointed to slower growth, weak consumption and deflationary pressures, and cited recent steps including a more expansionary fiscal stance in 2025 and 2026, an 'anti-involution' campaign to reduce over-investment, and the 15th Five-Year Plan’s focus on increasing consumption. The reform agenda he set out centred on levelling the playing field across firms and scaling back preferential treatment, which the IMF estimates could lift aggregate productivity by over 1 percent and raise the level of GDP by up to 2 percent, with the Private Economy Promotion Law described as a useful start; greater reliance on market-based pricing of capital and reduced incentives for overproduction, including by doing away with GDP growth and production targets in specific sectors; and strengthening the services sector through less regulation and a larger role for markets, alongside property-sector measures to accelerate the exit of unviable developers and allow greater housing price flexibility.

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