Chinese President Xi Jinping stands to leave after the opening session of the National People’s Congress (NPC) at the Great Hall of the People in Beijing, China, March 5, 2025.
Tingshu Wang | Reuters
Chinese leadership took on a hefty task by setting an ambitious growth target this year but Beijing may yet need much more forceful stimulus to achieve this goal, economists say.
China on Wednesday maintained its GDP growth target at “around 5%” for 2025, a target seen harder to reach given rising trade tensions with the U.S. and persistently weak domestic consumption.
While there was no direct mention of tariff tensions, Chinese Premier Li Qiang said in a speech at the opening plenary of the annual parliamentary meeting the country is facing external challenges that are “unseen in a century [and] unfolding across the world at a faster pace.”
U.S. President Donald Trump has slapped cumulative 20% new tariffs on Chinese imports in just a month and threatened more to come as soon as early April. The fresh tariff hikes are seen straining China’s exports, a rare bright spot in an otherwise slowing economy.
Pressure has been building on Chinese officials to release more forceful stimulus measures to prop up domestic consumption and the housing sector, while reducing the economy’s reliance on exports and investment. Exports contributed nearly a quarter of China’s GDP last year.
The policy targets, announced at the government work report Wednesday, showed that Beijing “will use stimulus to offset tariffs, so that China could grow at around 5% in 2025,” Larry Hu, chief China economist at Macquarie, said in a note Wednesday.
Any additional measures will likely arrive after officials assess the impact from tariffs on growth, he said. The country is expected to release its official first quarter GDP data in mid-April, followed by a meeting of the decision-making body Politburo to discuss economic policy in end-April.
Judging by the historic record, Beijing “can’t miss the GDP growth target, but they also don’t want to over-deliver,” Hu said.
After two years of consumer prices growth near zero, Beijing revised down its annual inflation target to “around 2%” — the lowest in more than two decades — from above 3% in prior years. Producer prices have declined for over two years.
The lower inflation target “hints at a degree of official acceptance of the current deflationary environment,” said Julian Evans-Pritchard, head of China economics at Capital Economics. The inflation goal typically serves as a ceiling rather than a target to be realized.
“Policymakers are not counting on a substantial reflationary impulse this year,” he said.
Insufficient fiscal boost
The fiscal package may not be sufficient to spur a reflationary rebound and prevent growth from slowing this year, Evans-Pritchard said.
To support this year’s growth target, the government made a rare increase in its fiscal deficit target to 4% of GDP, up from 3% last year. As part of the fiscal funds package, Beijing plans to issue 1.3 trillion yuan ($179.5 billion) in ultra-long term special treasury bonds this year, up from 1 trillion yuan in 2024.
They also allowed local governments to issue 4.4 trillion yuan of special debt, up from 3.9 trillion yuan, earmarked for infrastructure investment, purchasing land and apartments from debt-strapped developers, and local debt swap.
The overall increase in deficit spending is estimated to be around 1.5% of GDP, Evans-Pritchard said. That is smaller than the previous easing cycles when the Chinese government increased deficit spending by 2% of GDP in 2015 and 3.6% in 2020, he noted.
The country needs a “more pronounced shift in government spending towards boosting consumption” to ring-fence the economy’s path toward this year’s roughly 5% growth target, Evans-Pritchard said.
Consumption and housing drags
Chinese policymakers emphasized boosting consumption as a top priority this year, after several years of policy focused heavily on driving the economy with supply-side infrastructure and manufacturing investment.
Since last year, Beijing has sought to boost consumption using trade-in subsidies to encourage purchases of select goods. Authorities in January expanded the trade-in program to include smartphones and more home appliances.
As part of the widened fiscal package, the officials pledged an additional 300 billion yuan of ultra long-term special government bonds for the subsidy support.
Still, “this increased sum is small in the context of China’s 135 trillion yuan economy,” Gabriel Wildau, managing director at Teneo, said Thursday.
Stabilizing the housing market will be crucial to bolstering domestic demand as the prolonged real estate slump has dented consumers’ willingness to spend. Chinese authorities are expected to step in with more forceful measures to help the property market bottom out.
“In China, the most powerful macro policy is a merge of monetary, fiscal and housing policies, i.e. financing fiscal spending on housing with the PBoC’s balance sheet,” Macquarie’s Hu said.
Last mile push?
China managed to hit the 5% growth rate in 2024, boosted by a late stimulus push toward the end of the year, including several interest rate cuts and a five-year stimulus package totaling 10 trillion yuan.
Policymakers rushed to unleash a flurry of stimulus measures last September when the economy was at risk of missing the government’s target of around 5%.
Economists expect Beijing may exercise a similar playbook in 2025 and hold off on major stimulus measures until later in the year if growth slows or trade tensions escalate further.
“March is too early for any major policy stimulus, as policymakers need more time to see the actual impact of the trade war 2.0,” Hu said. “If necessary, policymakers could unveil new stimulus measures later this year, as they did last May and Sep. But for now, they will keep their cards close to the chest.”
China, which has rarely failed to reach its growth target, last missed it in 2022 when the coronavirus pandemic hammered growth down to 3%, far lower than the goal of around 5.5%.
Officials who drafted the work report told the press Wednesday that the 5% GDP target would require “very arduous work” to achieve, according to a CNBC translation of their statement in Chinese.
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