Reform measures: Xi (left) and Li at the National People’s Congress at the Great Hall of the People in Beijing. The Chinese premier acknowledges that achieving this year’s targets will not be easy and that they must make arduous efforts to meet them. — Reuters
BEIJING: China has set its economic growth goal at about 5% for 2025, raising expectations for officials to unleash more stimulus as they confront a trade war with the United States.
Premier Li Qiang announced the target yesterday as he delivered the government’s annual work report to the national parliament in Beijing.
This marks the third straight year China maintained that goal, but repeating it again will be difficult.
China also set this year’s financial deficit target to around 4% of gross domestic product (GDP), the highest level in more than three decades, according to the work report.
The GDP and general budget deficit goals were 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 who are determined to support growth against the backdrop of external uncertainties and trade tensions with the United States.”
As Li spoke, the offshore yuan traded 0.2% weaker against the US dollar, while China’s 10-year government bond yields slipped one basis point to 1.75%.
The central bank has opted to keep the currency steady to avoid financial instability, instead of allowing a weaker exchange rate to blunt the impact of higher tariffs.
The meeting of the National People’s Congress started a day after US president Donald Trump imposed another 10% tariff on China, threatening to cripple the export engine that last year contributed to almost a third of economic expansion.
Adding to Beijing’s problems, the nation is on track to record its longest streak of deflation since the 1960s, while the property crash has yet to bottom out. President Xi Jinping’s bullish goal will likely require his lieutenants to roll out more aggressive stimulus as promised in December.
Economists have called for that campaign to include greater public spending directed, at least in part, towards boosting weak consumer spending.
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.”
The central bank will cut interest rates and the amount of cash lenders must set aside in reserves “at an appropriate time,” Li said, after reiterating the government’s endorsement of a “moderately loose” monetary policy.
Maintaining a brisk pace of economic growth is important to social stability.
Every one percentage of GDP expansion can lead to the creation of about 2.5 million new jobs, making around 5% growth a necessity to keep employment steady, according to estimates by Zhu Baoliang, formerly chief economist at think tank, the State Information Centre.
The government forecast over 12 million graduates would enter the job market in 2025, slightly higher than last year.
China needs a growth rate of around 5% to fulfill Xi’s pledge of turning it into a “medium-developed country” by 2035, which economists said implied doubling in the size of the economy from 2020 levels.
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 have been 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.
Bloomberg economists Chang Shu, Eric Zhu and David Qu said: “China’s resolve to keep growth going is loud and clear, with policymakers planning a record budget deficit and setting targets for 5% GDP expansion and 2% consumer price index (CPI) inflation in 2025 – goals that will require considerable policy support to achieve.
“The macro objectives are also coupled with additional capital for banks and continued debt relief for local governments, which should help to improve policy traction.”
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 United States for tech supremacy.
A Bloomberg survey on 77 analysts forecast the Chinese economy would only grow 4.5% in 2025, reflecting the challenge of meeting the official target again this year.
In a tacit recognition of deflationary pressures, the government lowered its official target for consumer price increase to around 2%, according to the report, 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% for the past two years.
A growing chorus of economists are calling for the government to make the target a binding one for policies.
“With a CPI increase projected at around 2%, we aim to better balance supply and demand through a combination of policies and reform measures, so that the general price level will stay within an appropriate range,” Li said.
“Achieving this year’s targets will not be easy, and we must make arduous efforts to meet them.”
Li’s report delivered to thousands of delegates at the Great Hall of the People also provides clues on authorities’ specific plans for financial and monetary stimulus, which could impact global commodity prices and inflation.
“This is positive and important as a growth stabilising factor,” Wee Khoon Chong, senior Apac market strategist for Bank of New York Mellon Corp, 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’s financial strategy.” — Bloomberg
