China's parliament lines up stimulus to fend off tariff pressure
Business
Pressure has been building on Chinese officials to introduce policies
BEIJING (Reuters) - China kept its economic growth target for this year unchanged at roughly 5%, committing more fiscal resources than last year to mitigate the impact of rising U.S. trade tariffs and global shifts that Premier Li Qiang said were "unseen in a century."
The target, which confirms a December Reuters report, was unveiled by Li at the opening of the annual meeting of the National People's Congress (NPC), China's rubber-stamp parliament.
"Changes unseen in a century are unfolding across the world at a faster pace," Li said.
"An increasingly complex and severe external environment may exert a greater impact on China in areas such as trade, science, and technology."
An escalating trade war with U.S. President Donald Trump's administration is threatening to crimp China's economic jewel, its sprawling industrial complex, at a time when persistently sluggish household demand and the unravelling of the debt-laden property sector are leaving the economy increasingly vulnerable.
Trump has also dangled tariffs at a long list of countries, including some which would consider themselves staunch U.S. allies, threatening a decades-old global trade order that Beijing has built its economic model around.
Pressure has been building on Chinese officials to introduce policies that put more money into consumers' pockets to fend off deflationary woes and reduce the world's second-largest economy's reliance on exports and investment for growth.
Alex Loo, FX and macro strategist at TD Securities, said the growth target seemed "like a tall task for policymakers given the domestic challenges and external trade headwinds."
Li acknowledged "consumption, in particular, is sluggish," noting "pressures on job creation and income growth" and promised to "vigorously boost" household demand.
China aims for a budget deficit of around 4% of gross domestic product (GDP) in 2025, up from 3% in 2024, showed the report, which promised a "special action plan" to stimulate consumption.
Beijing plans to issue 1.3 trillion yuan ($179 billion) in ultra-long special treasury bonds this year, up from 1 trillion in 2024. Of these, 300 billion yuan will support a recently-expanded consumer subsidy scheme for electric vehicles, appliances and other goods.
Economists have been urging Beijing to engineer a long-term restructuring of resource allocation in the economy with more profound measures that reimagine its taxation, land and financial systems to weave a stronger social safety net.
China's household spending is less than 40% of annual economic output, some 20 percentage points below the global average. Investment, by comparison, is 20 points above.
Li pledged to address the gap between supply and consumption and implement fiscal reforms that improve local government revenues and shift officials' incentives more towards expanding household demand. No timeline was given for these measures.
Local governments will be allowed to issue 4.4 trillion yuan in special debt, up from 3.9 trillion, Li said. Beijing also plans to issue special debt of 500 billion yuan to re-capitalise major state banks.
"It doesn't look like China wants to go overboard with spending right away given the tariff threats as they potentially want to save ammunition for ... later in the year," said Charu Chanana, chief investment strategist at Saxo in Singapore.
INNOVATION DRIVE
China's 5% growth rate last year, which the government only reached with a late stimulus push, was among the world's fastest, but it was hardly felt at street level.
While China runs a trillion dollar annual trade surplus, many of its people are complaining of unstable jobs and incomes as their employers cut prices - and business costs - to stay competitive in external markets.
Chinese producers, facing weak demand at home and harsher conditions in the United States, where they sell more than $400 billion worth of goods annually, have no choice but to rush to alternative export markets all at the same time.
They fear this would intensify price wars, squeeze their profitability, and raise the risk that politicians in those new markets will feel compelled to erect higher trade barriers against Chinese goods to protect domestic industries.
Since Trump took office in January, his administration has so far added an extra 20 percentage points on existing import tariffs for Chinese goods, with the latest 10-point increment having kicked in on Tuesday.
"We worry that they will add another 10% and then another 10%," said Dave Fong, who manufactures school bags, talking teddy bears, stationery and consumer electronics in China. "That’s a big problem.”
China on Tuesday retaliated against the fresh U.S. tariffs.
Since the pandemic, China has primarily placed its future growth bets on what it calls "new productive forces" rather than on its 1.4 billion consumers, pouring resources into advanced manufacturing, hoping to close the technological gap with geopolitical rivals.
Li pledged to continue supporting high-tech industries and improve investment efficiency.
