In One Sentence

• Thousands of delegates from across China arrived in Beijing to attend the annual meetings of the National Committee of the Chinese People’s Political Consultative Conference (CPPCC), which opened on March 4, and the National People’s Congress (NPC), which began on March 5.
• In Premier Li Qiang’s annual Government Work Report, the economic agenda includes a GDP growth target of around 5 percent for this year, a deficit ratio of around 4 percent, and a surveyed unemployment rate target of 5.5 percent.
• China has been under deflationary pressure, with nominal GDP growing slower than real GDP for seven consecutive quarters in the final quarter of 2024 and consumer prices rising just 0.2% in both 2024 and 2023, while producer prices have been declining for over two years.
• Earlier, Chinese President Xi Jinping held a widely publicized meeting with top CEOs from China’s private sector, seeking to signal a departure from government crackdowns that have unsettled industries such as technology and education.

Mark the Essentials

• According to Premier Li Qiang, the 5 percent GDP growth target aims to stabilize employment, mitigate risks, and improve people’s livelihoods. He also stated that China will pursue a moderately loose monetary policy and optimize and innovate structural monetary policy tools to support the healthy development of the housing and stock markets.
• Without naming the United States, Premier Li acknowledged China’s trade challenges due to international pressure. He noted that China would defuse risks in key areas to counter external shocks. Two years ago, President Xi Jinping had told a CPPCC group that ‘Western countries, led by the United States, have imposed comprehensive containment on China.’ Reviving this language would signal a renewed confrontation—especially after omitting it last year.
• The deteriorating trade environment is a challenge to China’s exports, a key driver of economic growth in 2024. With weak domestic demand and Beijing wary of its debt-heavy growth model, the government is focusing more on boosting consumer spending.
• Li said Beijing will strengthen legal protections and policy support for private enterprises, ensuring their legitimate rights. Previously, President Xi had promised to improve financing access for private firms and curb excessive fines and penalties. Since then, various ministries have committed to implementing his directives.

Keeping an Eye On…

• So, what are the key takeaways regarding China’s near-term management of its economy that can be gleaned from the 2025 Government Work Report (GWR) that was delivered by Premier Li Qiang at the ‘Two Sessions’ meeting? Five points come to mind. First, the Party and the Government has finally set aside caution (up to a point though) on injecting stimulus into the economy. In September 2024, the CPC Politburo flipped the stimulus switch, rolling out a staggered set of monetary, capital market, housing market, and fiscal measures. These measures are to be consolidated, with fiscal firepower being committed in 2025 by way of an increase in the budget deficit ratio target to 4% of GDP (the target had been 3% in the 2024 and 2023 GWRs). All-in-all, China’s overall macroeconomic policy stance will be more supportive of short-term growth than at any time over this past decade.
  
  Second, the Party and the Government are very attentive to poor quarterly data. The decision in September 2024 to overrule its own inclinations and inject a round of stimulus was the product of early 2024 third quarter data which showed that the economy’s primary – and last remaining – domestic growth engine, fixed asset investment in industrial upgrading and high-tech manufacturing, was losing steam. It is investment in manufacturing and infrastructure (plus net exports) that had essentially kept the economy afloat over the earlier 12 months. Likewise, the disappointing 2023 second quarter numbers, when it had become clear that the post-COVID economic bounce-back was failing to materialize, had been the trigger for an earlier shift in policy stance. The rushed exit from the zero-Covid policy in December 2022 led to a brief travel and consumption boom in early-2023 but which faded by mid-year as retrenchment in the property sector affected both investment and consumption. At the time, it was reasoned that rather than simply throw cheap stimulus money at the economy’s problems, a new reformist push was necessary, which in turn led to the initiation of a rolling set of business operating environment reforms during the second half of 2023. With the new reformist push falling short, stimulus has now been added to the menu.
  
  Third, the Chinese leadership is still too fixated on hitting growth targets, still too focused on supply side measures, and still too squeamish on full-blooded stimulus. Six consecutive quarters of nominal growth lagging real growth, symptomatic of deeply embedded deflationary pressures, should have been grounds enough in Fall 2024 to inject stimulus aggressively to break the cycle of deflation and anchor inflationary expectations. In the event, while the monetary policy loosening and capital market support-related measures were ambitious, the fiscal support measures, including disbursals that are outlined in the 2025 GWR, remain underwhelming. Their purpose seems to be to juice the economy just enough to hit the 5% growth target, manage financial stability risks, and allow local governments to clear balance sheet space to stimulate the supply side of the economy. The measures will fall short of meaningfully reflating the economy and fully stimulating its demand side.
  
  Fourth, and that said, the central government is (finally) girding its loins to tackle long-delayed structural challenges. At the Central Economic Work Conference (CEWC) in December 2024, it was decided that the basic pension of retirees and vulnerable populations as well as the level of financial subsidies for basic medical insurance for poorer urban and rural residents would be raised. Earlier, in its July 2024 Third Plenum Resolution, the Party had called for the reassignment of intergovernmental expenditures, with the central government bearing a greater share of expenditures related to household  transfers. Economists have long championed the case for the central government rather than cash-strapped provinces to bear a greater share of these transfers and to augment the transfers, if need be, by issuing general bonds given its ample fiscal headroom, so as to strengthen social protections and reduce households’ propensity for excess savings. This reform seems to be launching in the 2025 GWR, although the increased amounts are still too small to materially impact domestic demand. In a similar vein, baby steps towards the reform of the intergovernmental fiscal framework – in this instance, placing more excise tax revenue at the disposal of local governments – is promised in the 2025 GWR.
  
  Finally, the top leadership’s fundamental economic outlook, goals, and strategies have not changed – despite the Trump-sized disruption to the global trading order. Investment in technology-enabled growth is to generate, both, stable economic growth with high-wage jobs and rising incomes that will create its own consumptive demand as well as self-sufficiency in core technologies that will enable China to surmount America’s technological chokehold. The near-term economic stimulus is merely a tactical shift in priorities to reignite private investment and stabilize the economy, which are key to achieving the longer-term pivot towards a ‘new quality productive forces’-led growth model. This reading of the leadership’s intentions calls into question though the extent to which it is willing to fiscally build out China’s social protection framework, including strengthening its pension system and shoring up the unemployment and medical insurance systems. Longer term, the leadership’s perceived disdain for ‘welfarism’ could come to weigh heavily on the economy’s ability to generate sustainable internal demand, leaving the Chinese economy uncoordinated and unbalanced, and dependent on overseas markets to absorb its excess production capacity.

Expanded Reading

• How China Plans to Trump-Proof Its Economy as Top Lawmakers Meet, Bloomberg, February 25, 2025.
• Xi Sends Message to China’s Private Sector, Foreign Policy, February 18, 2025.
• What to Watch at China’s Two Sessions in 2025, Asia Society, February 26, 2025.
• Critical moments, key junctures: Xi urges head-on approach as external threats mount, South China Morning Post, February 28, 2025.
• ‘Two sessions’ 2025: China sets GDP growth target of around 5%; military budget to rise by 7.2%, South China Morning Post, March 5, 2025