China’s top annual economic meeting concluded yesterday, with leader Xi Jinping announcing fiscal and monetary policies aimed at boosting growth, including taking steps towards interest rate cuts and more government borrowing.
China has been grappling with economic slowdowns and continued weak domestic consumer demand in recent years, in part brought on by the collapse of the real estate market where many middle-class Chinese have stored wealth.
According to research by Goldman Sachs, an investment bank, China’s real GDP growth is predicted to slow down to 4.5% in 2025 from 4.9% in 2024.
Xi said China is aiming for a “more proactive” fiscal policy and a “moderately loose” monetary policy for next year.
Lizzi C. Lee, a fellow on Chinese Economy at the Asia Society, a New York-based think tank, told DW that this year’s “Central Economic Work Conference,” conveys an “unusually urgent” signal.
In 2025, China will face fresh economic headwinds, with US President-elect Donald Trump entering office in January pledging to slap high tariffs on Chinese exports.
China’s growth strategy
According China’s state-run Xinhua News Agency, Xi emphasized at the conference that a key task for next year is to “vigorously boost consumption, improve investment efficiency, and comprehensively expand domestic demand.”
Also, authorities will increase the “fiscal deficit rate, expand the issuance of ultra-long-term special government bonds” and adopt a moderately loose monetary policy to reduce reserve requirements and interest rates to ensure ample liquidity.
This marks a huge shift in China’s monetary policy. Since the end of 2010, Beijing has stuck mostly to a so-called “prudent” approach to economic policy.
Wang Guochen, a scholar at Taiwan’s Chung-Hua Institution for Economic Research, told DW the easing means that authorities will start printing more money while purchasing government bonds on a larger scale next year.
In September, the People’s Bank of China launched the largest economic stimulus measures since the COVID-19 pandemic, releasing about 1 trillion yuan into the banking system.
In November, the finance ministry introduced a 10 trillion yuan ($1.4 trillion) debt financing plan to alleviate pressure on local governments.
Lee from the Asia Society said these measures show that China’s leadership is willing to do more, but “the real test will come down to how much Beijing actually pushes through,” as details and sizes of the planned additional stimulus remain scarce.
“Without greater clarity on magnitude and concrete reforms to back it up, there’s a risk these measures will lift sentiment only temporarily, leaving the long-term challenges unresolved,” she said.
Wang also warned that China has effectively fallen into a “liquidity trap” in recent years. Despite the loosening of monetary policy and decreased interest rates, people still prefer saving to spending because they are pessimistic about the future.
Real estate markets key to boosting growth
While the economic meetings chart the course for next year, actual growth targets and specific guidelines will only be announced in the following spring after the rubber-stamp parliamentary meeting.
Beijing set the GDP growth target for 2024 at 5%. Based on official data from the first three quarters, achieving this goal remains challenging this year. Yet, economists predict that the Chinese government may set the same target for 2025.
“While 5% is not out of reach, achieving it will demand decisive action, especially on property stabilization … given that housing accounts for about 20% of GDP and represents 70% of household wealth,” Lee said.
Additionally, the real estate market involves a wide range of upstream and downstream industries. When the market is sluggish, it leads to widespread economic downturns and even affects local government finances.
At the economic meetings, Beijing pledged to “stabilize the real estate and stock markets” next year and “continue to make efforts to halt the decline and stabilize the real estate market.”
However, Wang believes that the key to stabilizing the real estate market is for the Chinese government to purchase local inventory housing.
In doing so, “at least everyone feels that the bottom line of the real estate crash has been reached,” he said, and it could potentially restore confidence in the market.
“It’s clear that issuing more special government bonds won’t improve the overall economic situation,” Wang argues. “The economy is in recession, middle-class wages are shrinking … even if housing prices drop, they still can’t afford the mortgage.”
Beijing ‘refining a toolkit’ to counter Trump’s tariffs
Incoming President Trump has threatened Chinese imports to the US with tariffs of at least 60%.
Wang said that the institution he works for calculated estimates from about 13 institutional investors, predicting that with a 60% tariff imposed by the US, China’s economic growth rate could drop to 3%, compared to a previous prediction of 4.5%.
Research from Goldman Sachs predicts Trump will impose a lower 20 percentage point increase in the effective tariff rate, which would “weigh on China’s real GDP by 0.7 percentage points in 2025.”
While China’s core leadership did not directly mention the US-China trade war during the conference, they emphasized that “the adverse effects brought by changes in the current external environment are deepening.”
During a Tuesday meeting with several international economic organization leaders in Beijing, Xi said that “there will be no winners” in tariff wars.
Beijing’s current stance in response to Trump’s potential tariff increases is one of “watchful preparation” rather than outright confrontation, Lee points out.
“At the same time, China is quietly refining a toolkit to respond if tensions escalate. Cybersecurity investigations, tightened export controls, and regulatory scrutiny of foreign firms are all on the table,” Lee added.
China is also actively pursuing strategies to bolster domestic production in face of the ongoing tech war with the US, particularly in the semiconductor sector. “Tackling key core technologies” was highlighted at this year’s conference.
But Wang said pursuing technological independence in semiconductor will require significant investment without any guarantees of success. Moreover, prioritizing these industries could stifle the growth of the service sector. As a result, “technological independence and expanding domestic demand are bound to clash.”
DW correspondent Yu-Chun Chou contributed to this article
Edited by: Wesley Rahn
