Chinese President Xi Jinping will leave after the opening of the National People’s Congress (NPC) in the lobby in Beijing, China on March 5, 2025.
Tingshu Wang | Reuters
Economists say Chinese leaders have a daunting task by setting ambitious growth goals, but Beijing may need more powerful stimulus to achieve that.
China maintains its GDP growth target on Wednesday “About 5%” In 2025, given the increasing trade tensions with the United States and the continued weak domestic consumption, it is difficult to achieve the target.
Although there is no direct mention of tariff tensions, Chinese Prime Minister Lee Qi’an said In speech at the opening ceremony of the annual parliamentary conference The country faces “an external challenge that has not been seen for a century (and manifests itself at a faster rate”.
US President Donald Trump has New tariffs accumulated by 20% on slap Imports from China in just one month and threaten the coming of early April. Fresh tariff hikes are believed to be fiercely exported, a rare highlight of the slowdown in the economy.
Pressure has been intensifying as Chinese officials release stronger stimulus measures to support the domestic consumption and housing sectors, while reducing the economy’s reliance on exports and investment. Exports contributed nearly a quarter of GDP last year.
Macquarie’s chief Chinese economist Larry Hu said in a report Wednesday.
He said any other measures could be taken after officials assessed the impact of tariffs on growth. The country is expected to release its official first-quarter GDP data in mid-April, followed by a meeting of the Politburo of the decision-maker to discuss economic policies for April.
Judging from the long history, Beijing “can’t miss out on GDP growth targets, but they don’t want to over-relocate.”
In China, the most powerful macroeconomic policy is the merger of monetary, fiscal and housing policies…the two meetings hardly touched.
Larihu
Macquarie’s chief Chinese economist
Beijing has revised its annual inflation target to “about 2%” after two years of consumer price growth – The lowest in more than two decades – More than 3% in previous years. The prices of manufacturers have fallen for two years.
Lower inflation targets “hint on the formal acceptance of the current deflationary environment,” said Julian Evans-Pritchard, head of economics in China at Capital Economics. Inflation targets are often used as upper limits, not as the goal to be achieved.
“Policies makers are not expecting a major reflux impulse this year,” he said.
Inadequate financial improvement
Evans-Pritchard said fiscal plans may not be enough to stimulate a rebound and prevent a slowdown in growth this year.
To support this year’s growth target, the government’s fiscal deficit target rarely rose to 4% of GDP, up from 3% last year. As part of the fiscal funding plan, Beijing plans to issue 13 trillion yuan (US$179.5 billion) with this year’s extra-long term special fiscal bonds, up from 1 trillion yuan in 2024.
They also allow local governments to issue special debt of RMB 44,000, up from RMB 3.9 trillion, specifically for infrastructure investment, purchase of land and apartments from debt-strapped developers, and local debt swaps.
Evans-Pritchard said the overall increase in deficit spending is estimated to account for about 1.5% of GDP. He noted that this is smaller than when the Chinese government increased its deficit spending by 2% in 2015 and 3.6% in 2020.
Evans-Pritchard said the country needs a “more obvious shift in government spending to enhanced consumption” to move the economy toward its growth target of about 5% this year.
Consumption and housing resistance
Chinese policy makers stressed that after years of policy focus is to drive the economy through supply-side infrastructure and manufacturing investment, with consumption as the top priority this year.
Since last year, Beijing has been seeking to use the following subsidies to increase consumption to encourage the purchase of selected items. Authorities in January expanded their transaction plans to include smartphones and more household appliances.
As part of the expansion of the fiscal plan, officials promised another RMB 300 billion in ultra-long-term special government bonds to support subsidies.
Still, Teneo Managing Director Gabriel Wildau said on Thursday: “Nevertheless, the amount is small against the backdrop of China’s 135 trillion economy.”
Stabilizing the housing market is crucial to strengthening domestic demand, as extended property shortages make consumers willing to spend. Chinese authorities are expected to take more powerful measures to help the bottom of the real estate market.
“In China, the most powerful macroeconomic policy is the consolidation of monetary, fiscal and housing policies, i.e. housing financing, financing fiscal expenditures with (PBOC) balance sheets,”
The last mile?
China reached a 5% growth rate in 2024. Late stimulus is pushing towards the end of the yearincluding several cuts in interest rates and a five-year stimulus package, totaling 10 trillion yuan.
Policymakers are eager to release A series of stimulus measures last September When the economy is at risk of missing government targets about 5%.
Economists expect Beijing to execute a similar script in 2025 and take major stimulus measures until the second half of the year, if growth slows down or trade tensions escalate further.
“For any major policy stimulus, March is still too early, as policymakers need more time to understand the actual impact of the trade war 2.0,” said Hu. “If necessary, policy makers can unveil new stimulus later this year, like they did last May and September.
China rarely missed its growth target, missing the last time in 2022, when the coronavirus pandemic’s growth rate dropped to 3%, well below the 5.5% target.
Drafting officials Work report told the media on Wednesday According to the CNBC translation stated in Chinese, a 5% GDP target will require “very difficult work” to achieve.
