China targets ambitious 5% growth in 2025 as trade war with US simmers

BEIJING – China is pushing to expand its economy by an ambitious 5 per cent in 2025 in a show of confidence, unlocking more fiscal firepower to do so as its trade war with the United States escalates.

The headline target, listed in an annual work report delivered by Premier Li Qiang at the opening of China’s legislature on March 5, was broadly in line with economists’ expectations and unchanged from the last two years.

Still, it is higher than what analysts currently believe China can achieve, given the deteriorating trade environment and continuing domestic problems.

The World Bank has projected that China’s economy will expand 4.5 per cent in 2025, while the International Monetary Fund’s forecast is 4.6 per cent.

Crucially, additional tariffs that the US has been ratcheting up since the start of the year – now at 20 per cent – threaten to hobble the exports that had helped China to

achieve 5 per cent growth in 2024

amid a slowing economy. 

In his report, Mr Li pointed to a “severe external environment” and a rise in protectionism and tariff barriers globally that could impact China in trade and technology. 

The foundation for China’s sustained economic recovery and growth is also “not strong enough” domestically, he said, citing sluggish consumption, job market pressures and fiscal difficulties faced by local governments.

As for the US levies, they could knock 1 percentage point off China’s growth, according to an estimate by Dr Larry Hu, chief China economist at financial services firm Macquarie Group.

Still, China has opted not to moderate its growth target, a move that some analysts say is a show of confidence.

“Leaders probably don’t want to give the impression of being weak in the economy, especially faced with (US President Donald) Trump’s pressures,” said Mr Xu Tianchen, a senior economist at consultancy Economist Intelligence Unit (EIU) in Beijing.

He added that the strong growth figure was necessary for China to attain a goal that Chinese President Xi Jinping had previously set out: doubling the size of China’s economy between 2020 and 2035.

To shore up growth, the Chinese government will stimulate the economy by taking on more debt.

Mr Li outlined in his report how China this year would avail itself of more funds – that is, 11.86 trillion yuan (S$2.2 trillion) in new debt – to “enable a notably higher level of spending”. This is up 2.9 trillion yuan from 2024.

The world’s second-largest economy will be allowed to run a fiscal deficit of around 4 per cent of its gross domestic product (GDP) – the highest level in more than 30 years, according to Bloomberg. It has set the deficit at 5.66 trillion yuan.

In addition, China will issue a total of 6.2 trillion yuan in various special bonds, which do not form part of the deficit.

Some of this firepower will go towards boosting domestic demand, which is the policymakers’ top priority for the year.

Domestic demand – consumption especially – has been weak as households put off or cut back on spending amid uncertainty about the economy, exacerbating a deflationary streak that has weighed on China’s outlook.

Recognising these pressures, policymakers have lowered the country’s inflation ceiling to around 2 per cent, a more than 20-year low.

China will double down on a programme that aims to prod thrifty consumers into upgrading their cars, home appliances and other selected items by subsidising purchases and trade-ins.

This year, 300 billion yuan will go towards funding an

expanded version of the scheme

that covers more products – up from 150 billion yuan in 2024 when it was launched. At the time, it had boosted the consumption of goods under its remit but did not move the needle more generally.

Mr Li’s report also pledged unspecified measures to increase incomes and spending power, and to improve China’s leave system to “unlock consumption potential” in sectors such as tourism. But Beijing did not make any major adjustments to social welfare; monthly minimum pension payouts were increased just 20 yuan to 143 yuan, identical to 2024’s rise.

Additionally, China is aiming to create more than 12 million new urban jobs and to keep its unemployment rate at about 5.5 per cent – goals that mirror 2024’s. The country is projected to have a record high of 12.22 million college graduates in 2025, state media reported.

Some observers question whether the measures to boost private spending are sufficiently aggressive.

“More budgetary support is needed to boost consumption,” said economics professor Zhu Tian of the China Europe International Business School in Shanghai. “A multi-trillion-yuan consumption voucher programme would be far more effective than the current old-for-new subsidy scheme.”

Household consumption aside, Beijing will allocate 200 billion yuan to a programme that supports the upgrading of industrial equipment.

Large state-owned banks, squeezed by falling profit margins, will also get capital replenishments funded by 500 billion yuan in special treasury bonds.

As a years-long property slump weighs on the economy and on consumer sentiment, China would “make continued efforts to stem the downturn and restore stability in the real estate market”, the report noted.

Meanwhile, stabilising foreign trade and investment was also identified as a priority for 2025, as China’s exports face headwinds and foreign investments continue to fall year on year.

Mr Li’s report said, without elaborating, that policymakers would support Chinese companies in securing orders and exploring new markets. It also spoke about encouraging foreign investors’ reinvestments in China.

Analysts say it is unclear for now whether the fiscal firepower that Beijing has unveiled will enable it to meet its ambitious growth target this year.

“Whether this will be enough to achieve 5 per cent (growth in) GDP remains to be seen, and depends in part on an evolving external environment, including the negative impact of Mr Trump’s evolving trade policies,” said Adjunct Professor Bert Hofman of the East Asian Institute in Singapore.

“If the 60 per cent (tariffs) that Mr Trump threatened during his campaign were to come about, the drag on growth would probably (be) too large and further measures would need to be taken,” he added.

Observers believe that policymakers have more powder in reserve. The EIU’s Mr Xu highlighted that the report spoke of dynamically adjusting policies to the evolving situation over the year, “an implicit indication that if things become really bad, there will be more stimulus”.

Similarly, Macquarie’s Dr Hu said it was still too early for any major policy stimulus. “Policymakers need more time to see the actual impact of the trade war 2.0,” he said, referencing the first trade war that Mr Trump unleashed during his first term from 2017 to 2021.

“After all, their track record suggests that they can’t miss the GDP growth target, but they also don’t want to over-deliver,” he added.