China Keeps its 5% Economic Growth Goal in the Face of Growing Trade Tensions

With China’s economic growth target of about 5% for 2025, policymakers are expected to increase stimulus as they deal with a trade war with the United States. When Premier Li Qiang presented the government’s annual work report to the national parliament in Beijing on Wednesday morning, he made the announcement. China has kept that objective for the third consecutive year, but it will be challenging to do so again.

According to the work report, China also set a target for this year’s budget deficit of over 4% of GDP, the most immense amount in over thirty years. The targets for GDP and the overall budget deficit are consistent with what economists had predicted before the conference.

“The government will still need to support growth because it’s an ambitious growth target,” said Raymond Yeung, Australia & New Zealand Banking Group’s chief economist for Greater China. “This figure indicates that despite external uncertainties and trade tensions with the United States, authorities are committed to promoting growth.”

Shortly before Donald Trump’s speech to Congress, which was expected to focus on the US president’s tariff policy, Li presented his economic strategy for China to thousands of National People’s Congress delegates at Beijing’s Great Hall of the People.

Trump threatened to destroy the export-driven economy that accounted for about one-third of last year’s economic growth when he levied another 10% tax on China just a day earlier.

And it could only be the beginning. Trump’s promise to impose 60% tariffs on China, which he stated during the presidential campaign, may significantly slow the growth of the second-largest economy in the world this year. China’s 10-year government bond rates fell one basis point to 1.75 percent while Li was speaking, and the offshore yuan was down 0.2% vs the dollar.

Early trading saw the Hang Seng China Enterprises Index jump as much as 2.5% before reversing that gain. After eking out little gains earlier, the mainland’s market benchmark, the CSI 300 Index, traded 0.1% down.

As pledged in December, President Xi Jinping’s lieutenants will probably need to implement more vigorous stimulus to achieve his optimistic objective. Adding to the difficulties, the property slump has not yet bottomed out, and the country is headed for its longest deflation since the 1960s due to poor demand.

“The goal demonstrates our determination to confront challenges head-on and work diligently to meet our goals,” Li added. “We have considered the need to stabilize employment, prevent risks, and improve the wellbeing of the people in setting the growth rate at approximately 5%.”

The government announced plans to purchase more special bonds to finance increased public expenditure on infrastructure and other sectors not included in the headline budget deficit to provide fiscal stimulus.

According to Bloomberg’s assessments of official numbers, the government deficit target increased to 9.9 percent of GDP in 2025, the most on record and up from 7.7 percent the previous year.

Authorities will utilize 300 billion yuan of the profits from the sale of 1.3 trillion yuan (S$240 billion) worth of special sovereign bonds to fund a subsidy scheme for citizens’ consumer goods purchases, which will double in size by 2024. The remaining funds will support firms in upgrading their equipment and constructing significant infrastructure projects.

Li promised that improving people’s lives and increasing consumption would become the main goals of economic measures. He enumerated many measures to enhance social welfare, such as increasing the amount of pension payments and the government’s medical insurance subsidies.

However, he disappointed some who anticipated a price tag to be revealed in the report by offering no details in his general commitment to provide childcare assistance. The pension raise is identical to what China implemented the previous year.

Markets will probably desire more as a result of those actions. The consumer goods subsidy program is anticipated to temporarily increase spending since families are still cautious and more likely to preserve money in an unstable labor market.

Social stability depends on economic growth continuing at a rapid rate. According to Zhu Baoliang, the former top economist of the State Information Center, a think tank, every 1% increase in GDP may result in the creation of around 2.5 million new jobs, meaning that 5% growth is required to maintain employment stability.

According to a Bloomberg study of 77 analysts, the Chinese economy will only grow 4.5% in 2025, making it challenging to fulfill this year’s stated objective.

Interest rates and the amount of money lenders must put aside in reserves would be lowered by the central bank “at an appropriate time,” according to Li. That suggests that even if recent easing efforts have been constrained by a focus on protecting the yuan from devaluation pressure, monetary policy would still be relaxed to boost demand.

The government dropped its stated objective for consumer price increases to about 2%, the lowest since 2003, to implicitly acknowledge deflationary influences.

Although that target was previously mostly seen as a limit, its reduction indicates that policymakers have acknowledged that more significant price increases will be difficult to achieve after consumer inflation drops to only 0.2% over the previous two years. An increasing number of economists are urging the government to impose the aim as a policy requirement.

Regarding China’s objectives, Wee Khoon Chong, senior APAC market strategist at Bank of New York, stated, “This is positive and important as a growth stabilizing factor.” “Now, all that is required is the successful execution of all declared measures. Further credit and monetary easing will support China’s budgetary policy.