While the economic targets and policy announcements from the 5-11 March National People’s Congress (NPC) might not amount to a game-changer for China’s economy and financial markets, the event looks set to yield information that may help investors form a conviction on how China may fare in the coming months.
What’s expected and what are the implications?
The announcement of a 5% target for China’s GDP growth in 2025 was higher than the consensus forecast of 4.0%-4.5%. Despite a slowdown in China’s economy it’s the same level as targeted in 2024.
In our view, the gap between the market view and the official target serves as a policy signal that Beijing will pursue more aggressive reflation than in the past two years to achieve the growth target in the face of the domestic and external headwinds.
The expansion of the official fiscal deficit to 4.0% of GDP this year from 3.0% in 2024 will be funded by RMB 5.8 trillion in total central and local government borrowing – an increase of RMB 1.3 trillion in new borrowing over 2024. We estimate this stimulus could amount to 1.6% of GDP this year.
While this undershoots market expectations of 2.0%-3.0% of GDP, it should still be more than sufficient to offset the estimated hit equating to -0.6% of GDP from the new 20% tariffs imposed by the US on Chinese exports [1]. Crucially, in our view, Beijing is conserving its fiscal firepower to tackle a possible further escalation in US tariffs.
Overall, the monetary and fiscal easing measures announced at the NPC focus on boosting the supply side of the economy in the hope that this will create jobs and boost incomes to support consumption. Direct consumption stimulus through fiscal spending amounts to RMB 300 billion, or 0.2% of GDP, according to the announcement – double the 2024 amount.
What’s new?
There is an emphasis on the urban-village renewal programme and an explicit official pledge to prevent property developer defaults from creating a systemic shock.
Together with some recent green shoots in property transactions and prices, this suggests China’s property market woes could have bottomed. If so, it would go a long way towards improving public confidence, which is considered the biggest drag on private-sector spending.
The work report from the National Development and Reform Commission (NDRC), which provides guidance for policy implementation, specifically pledges to promote new growth engines. These include:
- Artificial intelligence (AI) innovation
- Quantum computing
- Aerospace
- New energy storage
- 6G mobile network development
- Smart home electronics
- Opto-electronic integration (an emerging technology with applications in, e.g., military services, automatic access control systems, telecommunications, and medical equipment).
Crucially, the NDRC also vows to implement the Private Economy Promotion Law.
These are important follow-up measures to President Xi’s high-profile meeting in February with leaders of China’s private-sector high-tech companies to revive ‘animal spirits’ and protect the rights of private firms. The measures also signal that the regulatory crackdown on the tech and broader private sectors appears to be over.
In conclusion
The NPC announcements confirm the policy direction that markets had expected. Importantly, they include details on improving implementation, reviving private-sector confidence, boosting consumption/strategic investment and supporting critical sectors such as technology and property.
This may help to further improve market sentiment towards Chinese assets after recent AI announcements put Chinese tech stocks back on investors’ radar.
China’s AI-related news boosted stock prices, with Hong Kong’s Hang Seng Index gaining 29% since the low point in mid-January, though the Shenzhen CSI 300 index had a more measured response, rising by 7%.
[1] Source: HSBC Global Research, 7 February 2025
