Last month, the third session of the 14th National People’s Congress concluded in Beijing. The annual parliamentary meetings, also known as the Two Sessions, provided insights into the overall fundamentals of the Mainland economy and shed light on the priorities of China’s forthcoming development. Amid escalating geopolitical tensions, it also serves as China’s response to the intensifying trade war with the United States.
Hitting Growth Targets
While many initially described the 5% economic growth target as ambitious, China met its goal last year. It was the first time that the country’s GDP surpassed the RMB 130 trillion threshold, reaching RMB 134.9 trillion.
Growth was driven by stimulus measures, robust exports and high-tech investment. The total import and export of goods expanded by 5% in RMB terms, setting new records in total value. Industrial output growth – a key indicator of manufacturing production – grew by 5.8%, with high-tech manufacturing expanding at 8.9%.
On the flip side, private investment was dragged down by the property sector, edging down by 0.1%. Meanwhile, consumer confidence and spending stayed weak, as indicated by a low inflation at just 0.2% – missing the official target of around 3%.
As we entered 2025, the Chinese economy exhibited signs of improvement in the first two months of the year. However, challenges remain both domestically and abroad. The real estate sector stays sluggish, weighing on consumption locally, while externally, the looming trade war casts an ominous shadow over foreign trade. Despite these challenges, the economic growth target is set at around 5% for the third consecutive year.
Comparing the key economic targets to previous years, a policy shift is evident. First, the inflation target has been reduced from 3% last year to 2% this year, marking its lowest level in more than 20 years, in response to the persistent deflationary pressures. Second, the deficit-to-GDP ratio is set at 4%, up by one percentage point over last year, and it is also the highest level on record. Combining all these clues, the Government is stepping up efforts and ramping up spending to navigate the volatile international environment, signalling a more supportive policy in 2025.
Boosting Consumption
China has long been committed to transitioning its economy from investment-driven and export-driven to a more consumer-oriented growth model. However, post-COVID consumer spending recovery has been sluggish, with retail sales growing by only 3.5% last year compared to 2023. This underscores the need for consumer-focused stimulus to counter deflationary pressures and reduce reliance on investment and exports for growth.
In a significant shift, boosting consumption has now been prioritized as the top focus among the major tasks for 2025, surpassing technology from its usual leading position. The Government is set to launch special initiatives to enhance consumption, including allocating RMB 300 billion – a doubling compared to last year – in special ultra-long-term bonds for consumer goods trade-in schemes. Following the Two Sessions, a 30-point action plan has been unveiled to stimulate consumption, with key priorities such as increasing incomes, stabilizing the stock and property markets, and offering child-care subsidies.
These measures demonstrate the Government’s strong commitment to boosting domestic consumption, a strategic move aimed at mitigating the impacts of weak external demand amid escalating trade tensions with the US.
The AI Race
The recent emergence of DeepSeek’s homegrown AI model has bolstered market sentiment in China this year. Unsurprisingly, its technological breakthroughs, particularly in AI, took the spotlight at the Two Sessions this year.
The Government Work Report allocated more attention to AI advancement than in 2024. The authorities are committed to promoting the extensive application of large-scale AI models and actively fostering new-generation intelligent terminals and smart manufacturing equipment. This includes intelligent connected new-energy vehicles, AI-enabled phones and computers, and intelligent robots.
While the global AI race will reshape international relations and redefine the global balance of power, China has intensified its efforts to compete for supremacy in this sector. Undoubtedly a focal point for 2025, there is much anticipation surrounding AI development as we await the unveiling of the 15th Five-Year Plan next year.
Doris Fung, dfung@chamber.org.hk