China’s Strong and Correct Policies Will Lead to Steady Economic Growth in 2025

The annual Central Economic Work Conference 2024, held on December 11-12, set the overall goal and policy framework for Chinese economy in 2025, a crucial year in China’s economic development as the final year of the 14th Five-Year Plan (FYP) and the preparation for the 15th FYP.

A series of incremental fiscal and monetary policies adopted since the end of September has seen their initial effects in stabilizing stock markets and boosting consumption and production, and thus enhanced the confidence of meeting the GDP goal for 2024. In the face of complicated external challenges and domestic difficulties — inadequate effective demand, overcapacity in some sectors and weak expectations, it is crucial to maintain stable growth in 2025. The Central Economic Work Conference 2024 set the general goal of 2025 on maintaining stable growth, employment and consumer prices.

To achieve these goals, more proactive and impactful macroeconomic policies will be indispensable. The conference has announced nine key tasks for next year. Among them, a more expansive fiscal policy is essential, including a higher deficit-to-GDP ratio, which enables the government to issue ultra-long-term special treasury bonds, helping relieve the debt burden on the local governments and release more resources to support local development and improvement of people’s wellbeing. The current fiscal deficit to GDP ratio in China has not exceeded 4.0 percent. The normal safe level is generally acknowledged at 3.0 percent. During times of economic difficulty or in need of excessive boost, a much higher ratio is reasonable.

During the global financial crisis in 2008-2009, the G20 London Summit in April 2009 decided a collective action of raising the fiscal deficit to GDP ratio, in some cases even to 6 percent. In early 2020 when the pandemic plagued the world and affected the economy and people’s livelihood badly, many countries boosted fiscal deficit rates again. Facts in both cases have proved them effective and necessary. Besides, China has a relatively low public debt-GDP ratio, at 56.1 percent at the end of 2023, much lower than most developed countries, thus leaving more room for the deficit fiscal policy.

Also of key importance, a moderately loose monetary policy next year has been decided. The policy includes the rollout of rate cuts and cuts in the reserve requirement ratio at an appropriate time to ensure ample liquidity. During the global financial crisis in 2008-2009, China adopted a similar policy and that was proved to be effective in coping with the serious difficulties then. Sixteen years later, the similar policy will again play a basic role in maintaining a stable growth, employment and price level.

Both fiscal and monetary policies are also targeted to stabilize the property and stock markets. The property market is still in decline. During the first 10 months of 2024, China’s total investment in the property market fell by 10.3 percent year on year, with sales of office buildings falling by 15.8 percent in area and by 20.9 percent in value, which means a continuous price fall. The home market performed even worse, with sales falling by 17.7 percent in area and 22.0 percent in value. It is envisaged that the proactive monetary policy will help stabilize the property market in 2025. The stock market has also seen a steady rebound since the end of September with a set of incremental policies. The A share index has hit 3,400 market compared to that under 2,700 three months ago. A further recovery is very likely to happen during 2025.

Consumption boost is a top priority and pillar in the economic work for 2025. During the first three quarters of 2024, final consumption contributed only 2.4 percentage points to GDP growth. The fundamentals lie in increasing the disposable income of the people. Therefore, the conference requires a simultaneous rise in people’s disposable income with that of GDP. The proactive fiscal policy will also help increase subsidies for job creation, and provide more welfare for low-income families and aged people. The trade-in in home appliances is expected to add one percentage point to retail sales in 2025. Service consumption, including catering, travel, recreation, and digital consumption, increased by 6.5 percent in October 2024, faster than retail sales in goods (up 4.8 percent) and will continue to support consumption growth in 2025.

The development of new quality productive forces through sci-tech innovation was underlined at the conference, with authorities set to launch an Artificial Intelligence Plus initiative and foster more emerging sectors. In October, China’s total above-scale industrial output added value increased by 5.3 percent over a year ago. Among the main categories, high-tech industries grew by 9.1 percent, with computer, telecom and electronics up 12.6 percent, industrial robots up 13.3 percent, solar panels and cells up 15.5 percent, and IC up 24.8 percent. With the R&D and application of AI in full swing, the new quality productive forces are set to become a strong and sustainable engine driving China’s economy forward in 2025 and beyond.

Expanding high-standard opening-up is another key policy set by the conference. The policymakers reaffirmed the commitment to stabilizing foreign trade and foreign investment inflows, and to taking proactive steps to further expand institutional opening-up in a steady manner. China will proactively develop services trade, green trade and digital trade, while steadily opening up its services sector. China’s foreign trade has been growing steadily so far this year. During the first 11 months, the total volume of import and export goods increased by 4.9 percent over the same period of 2023, faster than GDP nominal growth. Out of the total, the exports grew by 6.7 percent and imports by 2.4 percent. It looks certain that the foreign trade will wind up the whole year with a steady growth, thus providing solid support for total GDP growth. Looking into 2025, with high tariffs threat by the upcoming Trump Administration, Chinese exports will meet with more difficulties and perhaps will slow down. Hence, a more proactive policy to support exports and a further market diversification strategy are also in the pipeline.

The year 2024 has seen a fall in foreign direct investment inflows (FDI) into China. According to the official data released by the Ministry of Commerce of China, the total FDI into China reached 693.21 billion yuan, 29.8 percent down year on year. However, the figure for October was 21.6 percent lower than a year ago, showing an ease in the downward trend. It also shows that the fall in FDI will be temporary. With China’s huge business potential for global investors, the country’s steady economic growth, and further deepening institutional reforms, FDI is expected to rise again.

As the year of 2024 is coming to an end and the world is ready to ring in the new year, the Central Economic Work Conference has decided a series of major policies for China’s economy. Based on the analysis of these major policies, we have all the reasons to conclude the 14th Five-Year Plan successfully in 2025 and lay a solid foundation for the 15th FYP and beyond.

The article reflects the author’s opinions, and not necessarily the views of China Focus.