China Signals Economic Stimulus Readiness Amid Trade Tariff Concerns

Next year’s 2025 growth, budget deficit and other targets will be discussed – but not announced – in coming days at an annual meeting of Communist Party leaders, known as the Central Economic Work Conference (CEWC).

Reuters reported last month that most government advisers recommend that Beijing should maintain a growth target of around 5%, even though that pace seemed difficult to reach throughout this year.

The tone of the Politburo statement suggests that China won’t lower its growth ambitions for 2025, says Zong Liang, chief researcher at state-owned Bank of China. But it also suggests that China is likely to set an initial budget deficit target of around 4%, its highest ever.

“Beijing may want to use the ‘around 5.0%’ growth target to show that it won’t cave to Trump’s threatened 60% tariff and other restrictive measures imposed on China,” said Ting Lu, chief China economist at Nomura, who also expects a 4% fiscal deficit, up from 3% in 2024.

A one percentage point increase in the deficit amounts to additional stimulus of about 1.3 trillion yuan ($179.4 billion), but China can add to that if needed by issuing off-budget special bonds or allowing local governments to do so.

Beijing is expected to gradually take on greater fiscal responsibility as local municipalities are too deep in debt.

‘NO.1 TASK’

China is facing strong deflationary pressures as consumers feel less wealthy due to a prolonged property crisis and minimal social welfare. Low household demand is a key risk to growth.

In an apparent nod to this risk, the Politburo pledged “unconventional counter-cyclical adjustments” and to “greatly boost consumption.”

The new wording suggests the composition of stimulus “will likely differ substantially from past cycles, with more focus on consumption, high-tech manufacturing, and risk containment rather than traditional infrastructure and property investment,” Goldman Sachs analysts said in a note.

Morgan Stanley also read the statement as suggesting that elevating consumption will be “the No.1 key task for 2025,” but warned that “implementation remains uncertain.”

China has issued increasingly forceful statements on boosting consumption throughout the year, but it has offered little in terms of policies apart from a subsidy scheme for purchases of cars, appliances and a few other goods.

What else Beijing is prepared to do to boost consumption is another unknown. But demand-focused measures are key to improve the effectiveness of monetary policy easing in an economy that for decades has put production at its core.

“Monetary easing in China is far less potent than it used to be,” said Julian Evans-Pritchard, an analyst at Capital Economics.

“There is now limited appetite among households and large parts of the private sector to take on more debt, even at lower rates.”

($1 = 7.2453 Chinese yuan renminbi)