While President Xi Jinping has flagged China’s plans to pursue ambitious growth this year, analysts are concerned that stimulus measures may be insufficient to hit their stated expansion target if United States President Donald Trump pushes tariffs higher.
China’s announced expansion target of 5% for 2025 – the first time in over a decade Beijing had set the same goal for three consecutive years – follows widespread U.S. tariffs on Chinese goods to 20%.
What’s unclear is whether further tariffs are inevitable.
Containing surging debt
In contrast to previous downturns, notably the one following the pandemic, China has so far refrained from implementing “bazooka” stimulus measures, favouring a more prudent approach to contain surging debt.
What remains unclear to Christopher Beddor, deputy China research director at Gavekal Dragonomics in Hong Kong is what price China is now willing to pay for growth.
“It would come down to a political decision about what price they’re willing to pay for growth,” said. Beddor.
“Officials might be able to ramp up fiscal stimulus to hit the target, but the question is whether they’d be willing to accept a substantial rise in debt to do that.”
What’s equally unclear, adds Beddoris is China’s appetite for deals with the U.S. - potentially offering to buy more U.S goods - that could alleviate the need for more drastic stimulus measures.
President Xi is yet to speak with Trump since the U.S. leader took office 20 January.
However, Chinese embassy officials made their country’s position clear shortly after Trump’s tariffs were announced.
“If war is what the US wants, be it a tariff war, a trade war or any other type of war, we’re ready to fight til the end,” China officials posted on X.
Derailing China’s growth
According to Larry Hu, chief China economist at Macquarie Group, the maximum 60% tariff level that Trump floated on the campaign trail, could knock 2 percentage points off China’s growth in 2025.
Meanwhile, Shen Danyang, the Chinese official responsible for drafting the government work report has flagged backup plans for macroeconomic policies that will be “adjusted dynamically to respond proactively to the changing situation”.
Further announcements are expected to made by China following the release of first-quarter economic growth data mid-April.
While losing revenue would be challenging for China, analysts believe stimulus measures would go a long way to offsetting the impact.
However, analysts digress on exactly what it would cost to fill the gap left by exports to the U.S.
Stimulus measures
According to Carlos Casanova, senior Asia economist at Union Bancaire Privee, it would take “in the ballpark of tens of trillions of yuan.”
That estimate also accounts for Beijing shoring up the property sector and cleaning up a mountain of local government hidden debt maturing through 2026.
Tommy Xie, head of Asia macro research at Oversea-Chinese Banking Corp estimates 1 to 2 trillion yuan (as much as $436 billion) in stimulus measures would be needed save China’s 5% growth target.
Then there’s Wang Tao, chief China economist at UBS, who suggests adding 2 trillion yuan to broad fiscal deficit is another option for China.
Overall, analysts agree that forceful measures to stabilise the property market would be instrumental in shoring up domestic demand.
Given that property prices have fallen since 2021, this is seen by China’s top leaders as a top priority this year.
However, assuming exports do slow sharply Macquarie’s Hu suspects China will merge monetary, fiscal and housing policies, resulting in financing fiscal spending on housing using the central bank’s balance sheet.
While China could potentially devalue its currency, Morgan Stanley economists suggests this measure would be less likely give that the yuan is already at the weaker end of range the People’s Bank of China is comfortable letting the currency fluctuate within.
