Chinese leaders have reaffirmed their commitment to reviving the nation’s economy by unveiling plans for a more aggressive fiscal policy and moderate monetary easing during a high-level economic planning meeting that concluded on Thursday. The gathering, led by President Xi Jinping, highlighted the government’s determination to stabilize growth amid mounting external pressures and internal challenges.
State-run CCTV reported on the meeting after the mainland stock market had closed. The iShares China Large Cap ETF (FXI) saw a brief rise of 0.8% in premarket trading before paring back gains. The annual economic conference emphasized the need for increased government spending, a higher fiscal deficit, and the issuance of ultra-long-term bonds in 2025. Additionally, the conference confirmed plans to ease monetary policy, including potential interest rate cuts—a move not seen since the global financial crisis in 2008.
This shift in approach has been echoed by the Politburo, China’s second-most powerful governing body, which recently indicated a heightened sense of urgency to address economic stagnation. The Politburo’s focus on “moderately loose” monetary policy marks a notable departure, signaling Beijing’s readiness to tackle domestic economic weaknesses while bracing for potential external shocks, such as the prospect of renewed trade tensions with the United States under a possible second term for Donald Trump.
China typically unveils its annual growth target and fiscal deficit during its National People’s Congress session in March. However, Thursday’s meeting provided an early glimpse into Beijing’s intentions, with analysts forecasting a continued GDP growth target of around 5% for the coming year.
Shifting economic priorities amidst rising challenges
Zhiwei Zhang, president and chief economist at Pinpoint Asset Management, noted that the meeting’s emphasis on a rising fiscal deficit and lower interest rates aligns with market expectations. He remarked, “The direction of policy is clear, but the scale of the stimulus will be critical. We’ll likely gain more clarity after the U.S. announces potential tariffs on Chinese exports.”
Former U.S. President Donald Trump, who is set to take office in January if election results hold, has pledged to impose a 10% tariff on all Chinese goods imported to the U.S., further complicating China’s economic path.
As part of its strategy, Beijing emphasized the need to boost domestic consumption, incentivize effective investment, and advance technological innovation. Chinese leaders also acknowledged the increasing “external challenges” facing the nation. Chief Greater China economist at JLL, Bruce Pang, observed that the meeting marked a shift in China’s focus, moving away from the industrial sector and toward strengthening consumption and investment. “This change underscores the urgency of bolstering domestic demand to better navigate external uncertainties,” Pang explained.
The meeting also reiterated China’s intention to remain open to foreign engagement, despite limited reciprocation. For example, China recently allowed residents of certain countries, including Japan, to visit without a visa for up to two weeks. However, Japan has maintained stricter entry requirements for Chinese nationals.
Strengthening economic policy measures
The Politburo reinforced the government’s commitment to revitalizing the economy by announcing plans to implement “more proactive” fiscal tools and “moderately loose” monetary policies in 2025. It also pledged to intensify “unconventional countercyclical adjustments” to stimulate domestic consumption comprehensively.
Zhang described the policy announcements from the economic conference and the Politburo meeting as “significant” compared to earlier measures introduced in late September. Since then, Chinese authorities have rolled out a series of stimulus initiatives, including multiple interest rate cuts, relaxed restrictions on property purchases, liquidity support for stock markets, and a groundbreaking 10 trillion yuan ($1.4 trillion) stimulus package over five years to address local government debt burdens.
While these measures initially buoyed Chinese stocks, market performance has since stabilized within narrow trading ranges. Persistent deflationary pressures, however, have limited the effectiveness of earlier policies, prompting speculation that Beijing may need to introduce additional stimulus to achieve its growth ambitions.
Economic data highlights persistent challenges
Recent indicators point to ongoing economic struggles. In November, consumer price inflation fell to a five-month low, while wholesale prices continued to decline, with the producer price index registering its 26th straight month of deflation. These trends underscore the difficulties facing policymakers as they attempt to revive growth in the world’s second-largest economy.
Although Chinese authorities have repeatedly emphasized the importance of boosting consumption, concrete policy actions remain limited. A subsidy program encouraging trade-ins of used electronics and appliances has been one of the few notable initiatives to stimulate spending.
Looking ahead, economists widely expect Beijing to maintain its GDP growth target for 2025 at around 5%. To support this goal, some predict that policymakers may set a higher-than-usual budget deficit target of up to 4% of gross domestic product. Such a move would provide room for increased central government borrowing to inject more funds into the struggling economy.
Balancing stimulus with structural reform
Despite the urgency to address short-term economic pressures, Beijing appears cautious about the scale and sustainability of its stimulus efforts. While interest rate cuts and fiscal spending are critical tools, they must be balanced against the risks of overleveraging and longer-term financial vulnerabilities.
China’s recent shift toward promoting domestic consumption and investment reflects a broader effort to reduce reliance on exports and industrial production, particularly as external headwinds, such as geopolitical tensions and slowing global demand, persist. By fostering stronger internal demand, Chinese leaders hope to create a more resilient economic foundation capable of weathering future challenges.
Outlook for 2025 and beyond
While the details of China’s economic policies for 2025 will not be fully revealed until the National People’s Congress in March, the signals from Thursday’s meeting suggest a continued emphasis on stability and gradual reform. Policymakers face the dual challenge of addressing immediate growth concerns while laying the groundwork for long-term economic transformation.
The road ahead remains uncertain, particularly with the possibility of renewed U.S.-China trade tensions under Trump’s proposed tariff policies. However, Beijing’s recent announcements indicate a willingness to adapt and respond to evolving challenges, leveraging both fiscal and monetary tools to steer the economy toward recovery.
As China navigates this complex economic landscape, the effectiveness of its policy measures will be closely watched by global markets and investors, with implications that extend far beyond its borders. For now, the focus remains on achieving steady growth, fostering domestic demand, and maintaining resilience in the face of external pressures.
