Two Sessions Preview: Ambitious Growth Targets, Increased Policy Support (AI Translation)

两会前瞻：增长目标进取，政策支持加码

The upcoming National People's Congress (NPC) meeting on March 5 is expected to reiterate the economic goals set at the Central Economic Work Conference, with the 2025 growth target likely to be "around 5%". This target aims to stabilize market expectations amidst ongoing economic pressures and uncertainties, particularly concerning Sino-U.S. trade relations, where further U.S. tariff increases could impact China's economy significantly.[para. 1]

The government plans to maintain a general public budget deficit rate of about 4% of GDP, indicating moderate fiscal expansion. Initiatives will include issuing long-term special treasury bonds worth 2 trillion yuan for various developmental purposes and additional special treasury bonds to support banking capital injections. The issuance of local government special bonds, expected to exceed 4.5 trillion yuan, will also play a crucial role in financing infrastructure investments and property sector adjustments. Fiscal policies will target boosting consumption and social spending, including enhancing pensions, childcare subsidies, and basic social security. However, strict control over local government debt may slow infrastructure investments, albeit remaining at a high rate.[para. 2][para. 3][para. 5]

In monetary policy, a "moderately loose" stance is anticipated, aligning with the conference's recommendations, to lower corporate and household credit costs, possibly resulting in a reduction of policy rates by 30-40 basis points during 2025. Measures to maintain liquidity and manage the exchange rate overshoot risk are expected, despite ongoing challenges, including U.S. tariff pressures.[para. 4]

Another key focus of the NPC will be boosting consumption, notably through expanding "old-for-new" policies for consumer goods and increasing social security and pension allocations to foster long-term consumer confidence and growth. Proposals for fertility subsidies and childcare programs might be introduced later in the year.[para. 5][para. 6]

The real estate market remains a critical area, where stabilization efforts will center on housing demand stimulation and reducing commercial housing stock with the support of local government bonds. Although mortgage rates might decrease, facilitating better housing affordability, specific policy measures are expected to emerge later in the year, with potential declines in sales and investment areas anticipated.[para. 7][para. 8]

The conference will likely promote structural reforms in innovation, R&D, and private economy support, emphasizing technological advancement, legal frameworks improvement, and mitigating the impact of U.S. trade measures. Expanding high-level opening-up and integrating into the global supply chain remain pivotal strategies amidst ongoing uncertainties regarding international trade policies and their implications for the Chinese economy.[para. 9]

In the face of external tariffs and challenges, policies announced at the NPC could either fall short or exceed expectations. While weaker-than-expected fiscal stimuli and limited real estate inventory reduction are potential risks, stronger support for consumption and household sectors, alongside robust deflation-combatting measures, could significantly enhance domestic confidence and drive economic growth.[para. 10]

Ultimately, while projections for 2025 remain cautiously optimistic, enhanced policy support in areas like fiscal and tax reforms, service sector liberalization, and state-owned enterprise restructuring could be key to overcoming uncertainties tied to foreign economic policies and domestic real estate trends, thus aligning China's growth trajectory with the set targets.