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President Xi Jinping signalled China’s determination to push ahead with an ambitious growth goal this year, despite the trade war.
If Donald Trump boosts tariffs further, analysts say Beijing will need to unleash big stimulus to hit the target.
China announced an expansion target of about 5 percent for 2025 at its annual parliamentary session Wednesday, marking the first time in more than a decade Beijing had set the same aim for three straight years.
That resolve to put a floor under growth came less than a day after Trump hiked fresh blanket US tariffs on Chinese goods to 20 percent, with more levies looking inevitable.
As tariffs threaten to damage a major driver of growth, Chinese officials are trying to balance projecting strength while managing financial risks. Unleashing greater stimulus to fill a hole left by falling US trade would undermine Xi’s long-standing efforts to rein in surging debt.
Beijing has resisted “bazooka” stimulus since the pandemic, in contrast to previous downturns and other major economies.
“It would come down to a political decision about what price they’re willing to pay for growth,” said Christopher Beddor, deputy China research director at Gavekal Dragonomics in Hong Kong, referring to a scenario involving big tariff hikes. “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.”
One way China could avoid having to unleash more stimulus would be to strike a deal with Trump. That could see Beijing pledge to buy more US goods, or offering for domestic firms like electric vehicle giant BYD Co. to put factories on American soil.
While Trump signaled a desire to speak with Xi last month, they have yet to have a call since the US leader took office, putting the focus on domestic policy.
If tariffs rise to the 60 percent level Trump floated on the campaign trail, they could knock two percentages off China’s growth this year, according to Larry Hu, chief China economist at Macquarie Group.
While losing that revenue would be a challenge, analysts agree stimulus could mitigate the impact.
Officials have already alluded to more support ahead.
Shen Danyang, the official in charge of drafting the government work report, said “there are in fact back-up plans for macroeconomic policies, and policies will be adjusted dynamically to respond proactively to the changing situation,” at a press briefing on Wednesday.
Any additional measures will likely come after officials have had time to digest the effect of tariffs on growth.
China will release its official first-quarter economic growth data in mid-April, which will be followed by an economy-focused huddle of the decision-making Politburo.
Analysts are split on exactly what it would cost to fill the gap left by exports to the US, with Carlos Casanova, senior Asia economist at Union Bancaire Privee, saying it would take “in the ballpark of tens of trillions of yuan.”
That estimate takes into account Beijing shoring up the property sector and cleaning up a wall of local government hidden debt maturing through 2026.
Pumping an additional 1 trillion to 2 trillion yuan (as much as US$275 billion) worth of stimulus would save the growth target, according to Tommy Xie, head of Asia macro research at Oversea-Chinese Banking Corp., while Wang Tao, chief China economist at UBS Group AG, sees more than 2 trillion yuan being added to the broad fiscal deficit as another possibility. — Bloomberg
Online Reporter