With China’s annual “Two Sessions” approaching, the market is closely watching the 2025 economic growth target, policy stimulus measures, and support directions set to be unveiled.
In 2024, China’s GDP grew by 5%, achieving the targeted 5% growth set at the beginning of the year. After the Politburo meeting on September 26, the government introduced a series of stimulus measures, leading to a 5.4% year-on-year growth in GDP in the fourth quarter of 2024, reversing the slowing trend seen in the first three quarters of the year.
The market widely expects that the economic growth target for 2025 will remain around 5%, as announced in the government work report on March 5.
Nomura’s Chief China Economist Lu Ting predicts that the 2025 GDP growth target will be set at “around 5%” and the bank has recently raised China’s 2025 GDP growth forecast from 4% to 4.5% to reflect the better-than-expected 5.4% growth in the fourth quarter of 2024.
The recent boom in DeepSeek has sparked investment in emerging sectors such as AI, cloud computing, data centers, hardware, autonomous driving, and robotics; the recent stock market recovery has generated a wealth effect, especially as this recovery is seen as a revaluation of Chinese companies, directly boosting GDP growth through the rapid rise in domestic stock market trading volume; and in addition, the performance of the real estate sector has also slightly exceeded expectations, Lu notes.
“Compared to the macroeconomic context during the Central Economic Work Conference at the end of 2024, the macro backdrop of the Two Sessions is more positive,” said analysts at CICC.
They note the recent economic performance and the influence of DeepSeek on investor sentiment, but caution that the short-term performance of the capital markets might not change the judgment that there is still downward pressure on the economy for the year.
From local governments’ two sessions held earlier this year, 15 out of 31 provinces have lowered their GDP growth targets for 2025, and the weighted average GDP target for all 31 provinces in 2025 is 5.3%, slightly lower than the 2024 target of 5.4%, according to CICC.
Given the continued weak domestic demand and the possible continuation of low inflation, China’s inflation target for 2025 will likely be lowered. During provincial-level Two Sessions held in January, 27 provinces lowered their targets for consumer price index (CPI) growth for 2025 from the usual 3% to around 2%.
Xiong Yuan, Chief Economist at Guosheng Securities, predicts that the national CPI target may also be lowered to around 2%. Historically, the national CPI target is closely aligned with local targets.
To address downward economic pressures, there is a broad consensus that China will continue to step up macroeconomic policies, though the differences lie in the policy mix and intensity.
On February 21, Finance Minister Lan Fo’an published an article in People’s Daily stating that in 2025, the fiscal deficit ratio will be increased, and long-term special national bonds will be issued to support major national strategic and key security and capacity-building projects as well as equipment renewal and consumer goods trade-in programs, along with an increase in the scale of new local government special bonds.
Since October 2024, the Ministry of Finance has also stated multiple times that the central government still has significant room to increase debt and expand the deficit. Several market institutions predict that the fiscal deficit ratio in 2025 will rise from around 3% in 2024 to around 4%.
Apart from the deficit, the market is also paying attention to the arrangements for long-term special treasury bonds and local government special bond quotas.
China issued 1 trillion yuan special treasury bonds in 2024, and the market predicts that the size for 2025 could range from 1.5 trillion yuan to 2 trillion yuan, with additional special treasury bonds to be allocated for injecting capital into small- and medium-sized banks.
The new local government special bonds issued in 2024 amounted to 3.9 trillion yuan, and the authority has clearly said that from 2024, an additional 8 billion yuan will be allocated each year for the next five years to specifically support debt swap. If the government continues to increase its support for infrastructure investment with special bonds in 2025, many institutions predict that the new special bond issuance could reach around 4.5 trillion yuan.
The Central Economic Work Conference prioritized expanding domestic demand, particularly boosting consumption, for 2025 and related policies are expected to be a highlight of the Two Sessions.
UBS Chief China Economist, Wang Tao, noted that in January, the government expanded the consumer goods trade-in policy to include more home appliances and consumer electronics, and it’s expected that the government will announce a plan to double this scale to over 300 billion yuan at the Two Sessions.
Policies to increase pensions for retirees, raise basic pensions for urban and rural residents, and increase subsidies for basic social insurance are also likely to be proposed, which would help boost consumer confidence and unlock the long-term consumption growth potential. Additionally, there may be nationwide subsidies for child-rearing and fertility, Wang said.
Due to the influence of DeepSeek’s popularity, the market is also keen to see the Two Sessions’ plans for new productivity forces sectors.
The Central Economic Work Conference had placed “leading the development of new productivity forces with technological innovation” as the second priority for 2025.
Xiong predicts that the Two Sessions will continue to emphasize strengthening basic research and tackling key core technologies, launching “AI+” initiatives, and cultivating future industries, and it will stress improving the multi-level financial services system and attract more social capital to participate in venture investment.
Regarding the real estate market, Lu notes that thanks to a series of easing policies since September 2024, the real estate market has stabilized, with the year-on-year growth in new home sales, which had previously fallen sharply, and some first-tier cities have seen the largest increase in existing home prices since mid-2021.
However, the stabilization is limited to first-tier cities, with some self-sustaining downward spirals remaining, and there are still no clear signs of a sustained recovery, he says.
Therefore, in 2025, central government stimulus plans are expected to continue to focus on clearing the real estate market by reclaiming land or helping developers complete pre-sold homes, providing financial support to the real estate sector, he estimates.