China sets GDP target at about 5% despite US tariffs
CHINA set its economic growth goal at about 5 per cent for 2025, raising expectations for officials to unleash more stimulus as they confront a trade war with the US.
Premier Li Qiang announced the target Wednesday morning as he delivered the government’s annual work report to the national parliament in Beijing. This marks the third straight year has China maintained that goal, but repeating it again will be difficult.
China also set this year’s fiscal deficit target to around 4 per cent of gross domestic product — the highest level in more than three decades, according to the work report. The GDP and general budget deficit goals are in line with economist expectations heading into the meeting.
“It’s an ambitious growth target, and it means the authorities will still need to support growth,” said Raymond Yeung, chief economist for Greater China at Australia & New Zealand Banking Group. “This number reflects authorities are determined to support growth against the backdrop of external uncertainties and trade tensions with the US.”
Li outlined his blueprint for China’s economy to thousands of delegates of the National People’s Congress at the Great Hall of the People in Beijing, shortly before Donald Trump delivered his address to Congress — with the US president’s tariff policy set to take center stage.
Just a day earlier, Trump imposed another 10 per cent levy on China, threatening to cripple the export engine that last year contributed to almost a third of economic expansion.
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And that could be just a start. If Trump goes through with a proposal he made during the presidential campaign of putting 60 per cent tariffs on China, it could knock off a significant portion of growth for the world’s second-largest economy this year.
As Li spoke, the offshore yuan traded 0.2 per cent weaker against the dollar, while China’s 10-year government bond yields slipped one basis point to 1.75 per cent.
The Hang Seng China Enterprises Index gained as much as 2.5 per cent in early trading before paring that move. The CSI 300 Index, the mainland’s equity benchmark, traded 0.1 per cent lower after eking out small gains earlier.
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President Xi Jinping’s bullish goal will likely require his lieutenants to roll out more aggressive stimulus as promised in December. Adding to the challenges, the nation is on track to record its longest streak of deflation since the 1960s as a result of weak demand, while the property crash has yet to bottom out.
The target “underscores our resolve to meet difficulties head-on and strive hard to deliver,” said Li. “In setting the growth rate at around 5%, we have taken into account the need to stabilise employment, prevent risks, and improve the people’s wellbeing.”
In a step to boost fiscal stimulus, the government unveiled a plan to increase its sales of special bonds to fund greater public spending in areas including infrastructure, which aren’t counted toward the headline budget deficit.
A broad measure of government deficit target reached 9.9 per cent of GDP in 2025, the highest on record and up from 7.7 per cent last year, based on Bloomberg calculations of official figures.
As part of that plan, authorities will sell 1.3 trillion yuan (S$240 billion) worth of special sovereign bonds and use 300 billion yuan of the proceeds to finance a subsidy program for residents’ purchases of consumer goods, doubling its size in 2024.
The rest of the money will go toward building major infrastructure projects and encouraging businesses to upgrade their equipment.
Li pledged that the focus of economic policies will shift to benefiting people’s lives and boosting consumption. He listed a few steps to improve social welfare, including raising pension payout levels and the public subsidy for medical insurance.
But he provided no specifics in making a broad pledge to hand out childcare subsidies, disappointing those who expected a price tag to be unveiled in the report. The pension increase is the same as China enacted last year.
Those measures will likely leave markets wanting more. The consumer goods subsidy program is expected to give only a temporary boost to spending, as households remain cautious and prone to save more in the face of an uncertain job market.
Maintaining a brisk pace of economic growth is important to social stability. Every one percentage of GDP expansion can lead to the creation about 2.5 million new jobs, making around 5 per cent growth a necessity to keep employment steady, according to estimates by Zhu Baoliang, former chief economist at think tank the State Information Centre.
The government forecast over 12 million graduates will enter the job market in 2025, slightly higher than last year.
Supporting economy
The growth and budget targets mean “the government is willing to support the economy,” said Vey-Sern Ling, managing director at Union Bancaire Privee. “This should be reassuring to the markets.”
There are recent signs pointing to an improving outlook for the economy. DeepSeek’s recent breakthrough in artificial intelligence boosted market sentiment, as did a rare meeting between Xi and homegrown technology champions.
But the question now is how long the momentum will last in the face of Trump’s unpredictable tariff announcements and the intensifying competition between China and the US for tech supremacy.
A Bloomberg survey on 77 analysts forecast the Chinese economy will only grow 4.5 per cent in 2025, reflecting the challenge of meeting the official target again this year.
The central bank will cut interest rates and the amount of cash lenders must set aside in reserves “at an appropriate time,” Li said. That implies monetary policy will still be loosened to stimulate demand, even though a focus on defending the yuan against depreciation pressure has limited easing moves recently.
In a tacit recognition of deflationary pressures, the government lowered its official target for consumer price increase to around 2 per cent, the lowest since 2003.
While that goal was largely regarded as a ceiling in the past, trimming it shows officials have conceded faster price growth will be a challenge after consumer inflation reached only 0.2 per cent for the past two years. A growing chorus of economists are calling for the government to make the target a binding one for policies.
“This is positive and important as a growth stabilizing factor,” Wee Khoon Chong, senior APAC market strategist for Bank of New York Mellon, said of China’s targets. “All that’s needed now is effective implementation of all measures announced. We expect further credit and monetary easing to complement China fiscal strategy.” BLOOMBERG
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