China should set an economic growth target of about 5% for 2025, an indicator similar to the analogous goal for the current year.
The mentioned recommendation was made by Wang Yiming, former deputy director of the Development Research Center of the State Council, at the China Macroeconomy Forum in Beijing last weekend. This forum was held on the eve of the central work conference on economics, an annual meeting that sets the tone for the appropriate policy course for the next 12 months.
Wang Yiming said that the target of about 5% is necessary as a demonstration that Beijing’s approach is currently characterized by determination. Also, according to the expert, China should increase the fiscal deficit ratio to above 3.8%. Wang Yiming noted that the implementation of the relevant decision will form a space for additional stimulus and allow the Asian country to guard itself against potential tariff growth after the January return of Donald Trump, who won the United States presidential election last month, to the White House.
According to the expert, Beijing should set the goal of increasing gross domestic product (GDP) at about 5%, since the corresponding indicator guides market expectations and expresses confidence.
It is worth noting that in the current year, China’s economic growth rates demonstrate what can be described as the tendency of a consistent slowdown. In the first quarter of 2024, the Asian country’s GDP increased by 5.3% year-on-year. In the next quarter, the growth rate of the corresponding indicator slowed to 4.7%. In the third quarter, China’s GDP grew by 4.6%. It is worth noting that in the autumn, the authorities of the Asian country announced a package of measures aimed at reviving the economy. This fact is unequivocal evidence that the Chinese authorities are aware of the weakening of the upward momentum of the economy. It is also noteworthy that Beijing’s traditional communication strategy as a political center does not provide any detailed statements or at least extensive comments on economic problems. The announced package of measures to revive the dynamic of GDP growth is a clear signal that the Chinese authorities are aware of the need for efforts to improve the situation that has formed in the country’s economy. In the relevant context, it is worth paying attention to the fact that Beijing is still, in a certain sense, facing what can be described as a kind of echo of the coronavirus. In this case, it is implied that the widely expected high-intensity recovery of the Chinese economy, which is the second largest in the world, after the coronavirus pandemic, has not yet taken place. The mentioned pandemic has become a significant stress factor with sensitive consequences of various categories, including financial, not only for the Asian country but also for the whole world. The weakening of the GDP growth momentum is becoming an increasingly significant problem for Beijing. Currently, the main factors of pressure on the Chinese economic system are the downturn in the local real estate market, which turned out to be protracted and contains risks of transforming into a structural phenomenon, a low level of domestic demand, and a drop in confidence from foreign investors. Experts have repeatedly stated that Beijing should take decisive and wide-ranging measures to improve the mentioned state of affairs. It will become known over time whether the stimulus decisions announced in the fall will become a factor in reviving the economy.
Wang Yiming said that an increase in trade tensions seems inevitable. Probably, in this case, it implies the expected implementation of Donald Trump’s intentions to tighten tariff policy, including concerning goods imported from China. Last week, Mr. Trump has already made statements confirming the mentioned intentions. Wang Yiming also mentioned such negative factors as sluggish domestic demand, the situation in the real estate market, and the likely decline in Beijing’s export performance. According to the expert, against the background of the mentioned circumstances, to achieve the goal of economic growth at about 5%, the Chinese authorities will need a more supportive fiscal and monetary policy next year.
Wang Yiming cited research from China Finance 40 Forum, a think tank, specializing in the issue of economic and financial policies. In this case, it implies information that broad fiscal expenditures should increase by 2.6 trillion yuan ($359 billion), which is equivalent to 2% of the nominal GDP of an Asian country. At the same time, this would necessitate a raising of the government’s deficit ratio.
It is worth noting that for most years China maintained the official fiscal deficit ceiling at about 3%. In this case, the exception was in 2020, when, against the background of the coronavirus pandemic, the mentioned indicator rose to 3.6%. Moreover, in October last year, the corresponding rate was increased to 3.8%. This change in the indicator was recorded after Beijing issued special government bonds for 1 trillion yuan for disaster relief and reconstruction.
According to Wang Yiming, to demonstrate more proactive support from the policy side, the Chinese authorities should consider the possibility of raising the budget deficit ratio above 3.8%. According to him, clear policy statements are needed to restore and boost confidence.
Wang Yiming’s point of view largely coincides with the opinion of analysts at Bank of China. According to an outlook published by experts of the mentioned financial institution last month, the implementation of the existing stimulus policy and further measures will be crucial for economic recovery. Bank of China analysts also noted that the Asian country’s economic system could show growth of about 5% next year, despite trade tensions, which are a factor affecting exports. It is worth noting that currently, external product shipments are actually a kind of foundation for the upward dynamic of the world’s second-largest economy. In October, Chinese exports increased by 12.7% year-on-year. In monetary terms, goods shipments from China in the mentioned month amounted to $309 billion. In this case, the final result significantly exceeded the preliminary expectations. According to experts, the high-intensity export growth is because Chinese factories rushed inventory to the major markets against the background of expectations that the United States and the European Union will raise tariffs on goods imported from an Asian country. The potential increase of the mentioned tariffs will be a sensitive impact factor for Beijing with significant consequences. It is possible that against the background of the implementation of the corresponding scenario, China will be forced to take additional measures to stimulate the economy.
Wang Yiming also said over the last weekend that the issuance of special government bonds could be expanded in the Asian country next year. According to him, the corresponding potential solution will be focused on supporting China’s commercial banks. Besides, Wang Yiming stated that interest rates and the reserve requirement ratio could be cut further to reduce debt costs.
