The Stage Set for 2025

As 2024 comes to an end, the pickup in consumption and robust growth in a range of sectors have bolstered confidence that the Chinese economy is right on track to meet the preset growth rate of around five percent.

Benefiting from a flurry of consumption-stimulating policies and measures, China’s online retail sales surpassed RMB 14 trillion in the January-November period, a year-on-year increase of 7.4 percent. Imports and exports maintained steady growth during the same period, climbing by 4.9 percent year-on-year in renminbi. Value-added industrial output also expanded 5.8 percent year-on-year. The volume of express delivery parcels reached a new high of 150 billion and is expected to grow higher still given the new-year festivities ahead.

China’s manufacturing sector also posted notable growth. In November, hi-tech products recorded a 5.1 percent year-on-year increase in sales revenue. The hi-tech services sector grew rapidly as well, with sales revenue swelling by 8.4 percent from the year before. Most impressively, new-energy vehicle (NEV) sales surged 47.4 percent year-on-year to nearly 1.51 million units in November. NEV sales accounted for 45.6 percent of China’s total sales of new cars in November.

Foreign investors remain sanguine about China’s economic prospects, as evidenced by the 8.9 percent year-on-year increase in the number of newly-founded foreign firms. However, there are still questions about the real estate market, which looked lackluster, domestic demand still not reaching its full potential, and the direction of macro policies. Amid domestic difficulties and external pressure such as rising geopolitical tension and protectionism, how will China navigate its economy? 

The annual Central Economic Work Conference has laid down the priorities of economic development in 2025 by outlining the major tasks ahead. There will be more proactive macro policies, an appropriately accommodative monetary policy, measures to boost domestic demand, and efforts to stabilize the property market. The goals are fueling economic growth, boosting people’s income, and enhancing the country’s appeal to foreign investors. 

A more proactive fiscal policy is on the cards. The deficit-to-GDP ratio will be raised, the intensity of fiscal spending will increase, and the fiscal expenditure structure will be improved. 

A RMB 12 trillion policy package, which Finance Minister Lan Fo’an described as “the most significant measure introduced in recent years,” has been announced to address the hidden debts of local governments facing falling revenues. It includes raising the debt ceiling of local governments by RMB 6 trillion over the next three years to discharge the “hidden debts,” a form of off-budget borrowings through local government financing platforms, government investment funds, and other channels. This is expected to save RMB 600 billion in interest for these governments over five years, Xinhua reported. Thanks to the package, the total hidden debts local governments need to address by the end of 2028 will be slashed from RMB 14.3 trillion to RMB 2.3 trillion. While easing the financial strain, the debt-relief package will also help improve public services and social welfare.

Notably, the monetary policy is shifting to being “appropriately accommodative” in 2025 after staying “prudent” for more than a decade. Observers say this is in response to the challenging economic situations. A similar shift happened in 2008 in order to cushion the impact of the global financial crisis. 

“It’s a necessary and feasible adjustment based on the current realities,” Huang Hanquan, head of the Chinese Academy of Macroeconomic Research, said. Zou Lan, an official with China’s central bank, said the policy adjustment is aligned with the changing global liquidity environment.

Under the appropriately accommodative monetary policy, there will be a more supportive credit environment for financial resources to flow to key sectors and weak links in the economy, such as technological innovation, people’s livelihood and consumer sectors, thus boosting economic recovery and market confidence. 

In the first three quarters of 2024, consumption contributed 49.9 percent of the country’s economic growth, significantly surpassing investment (26.3 percent) and exports (23.8 percent).

Millions of consumers benefited from the nationwide consumer goods trade-in program of RMB 150 billion, which was raised through ultra-long special treasury bonds. The scheme to exchange old consumer items for upgraded ones helped unlock the domestic consumption potential and propel the green transition. The sales revenue of consumer goods under the trade-in program surpassed RMB 1 trillion, official data showed. The highlights included the sale of over 49 million units of home appliances and nearly 900,000 electric bicycles. According to the central economic work conference, large-scale equipment upgrades and consumer goods trade-in programs will be promoted with greater intensity and scope in 2025.

Meanwhile, China’s property market is showing signs of rebound, underpinned by well-targeted policies, including adjustments to housing purchase restrictions, reduction in interest rates on existing mortgages, and improved land, fiscal, tax and financial policies. In October, new home transactions edged up 0.9 percent year-on-year, reversing a 15-month decline. The total transactions of both new and second-hand homes climbed by 3.9 percent, marking the first increase after eight months of drops. 

International business leaders have expressed confidence in the world’s second largest economy. With strong policies and practical partnerships, China is well-positioned for high-quality growth in 2025, and will continue to play an important role in driving global economic recovery, said Michael Borchmann, former head of the European and International Affairs Department of the federal German state of Hesse. 

Meanwhile, China continues to be a preferential investment destination for German companies, as shown by a business confidence survey published by the German Chamber of Commerce in China in December. Around 92 percent of the respondents said they would continue to operate in China.