Policymakers expected to prioritize stabilizing growth, boosting buying appetites as key tasks
China's policymakers will enhance countercyclical adjustments and take more steps to boost consumption, as the broader economy still faces pressing challenges from lackluster domestic demand and uncertainties from the external environment, economists said.
Their comments have come at a time when the market is eagerly awaiting proactive moves to revive the economy at the annual meetings of China's top legislative and political advisory bodies, or two sessions.
Wang Tao, chief China economist at UBS Investment Bank, said her team expects the two sessions to follow the policy stances of the Central Economic Work Conference held in December and again set a GDP growth target of "around 5 percent" to anchor expectations.
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Wang said policymakers are likely to prioritize "stabilizing growth "as the central task and emphasize boosting domestic demand through more supportive macro policies, with "reviving household consumption" being listed as a top task.
Wang said her team expects the government to announce a higher headline budget deficit of around 4 percent of GDP and larger ultra-long-term special central government bond issuance of 2 trillion yuan ($275.3 billion) to support the trade-in program of consumer goods, corporate equipment upgrades and long-term projects.
The team also expects another 500 billion yuan to 1 trillion yuan of special central government bond issuance for capital injections to banks, and more special local government bond issuance of 4.5 trillion yuan or more to support local government financing vehicles' debt swap and for home inventory destocking.
On the monetary front, she said policymakers will follow the "moderately loose" monetary policy tone set in the Central Economic Work Conference, with explicit calls to lower the funding costs of corporate finance and household credit, cutting the reserve requirement ratio and policy rates, enhancing countercyclical adjustments, and pushing forward a "reasonable rebound" of inflation.
"We expect the People's Bank of China, the nation's central bank, to cut policy rates by 30 to 40 basis points in 2025, likely in later months after the two sessions, and commercial banks to lower deposit rates further," she said. "The PBOC may also use various facilities to maintain ample liquidity, including more outright repos, partly to cope with a much larger scale of government bond issuance in 2025."
Wang said the government is likely to prioritize "boosting consumption" as the top policy task in the two sessions.
"We expect the government to ramp up fiscal spending to support consumption and the household sector, including more than doubling the size of trade-in programs, creating a subsidy scheme for families with young children, and increasing the payout level of residents' basic pension and government contribution to basic social insurance."
During a news conference at the beginning of 2025, the National Development and Reform Commission, the country's top economic regulator, said the annual quota for the consumer goods trade-in program for this year, which will be significantly larger than that of 2024, will be announced during the two sessions.
China's accelerated push for promoting trade-in deals for consumer goods is paying off, with significant growth in consumer spending on key items such as automobiles and home appliances, providing a solid base for steady economic recovery.
Official data showed that retail sales of passenger cars grew 5.5 percent year-on-year to 22.894 million units in 2024, while retail sales of home appliances and audiovisual equipment under the trade-in program reached 1.03 trillion yuan, up 12.3 percent year-on-year.
Among automobile trade-ins, more than 60 percent of the purchases were new energy vehicles, with over 6.6 million old vehicles replaced by new energy or energy-efficient cars. For home appliance trade-ins, sales of products with high energy efficiency accounted for over 90 percent, driving retail sales of highly energy efficient home appliances and smart home appliances to double-digit growth for four consecutive months.
"High-tech products with high energy efficiency are favored, which also helps drive the high-end, intelligent and green transformation of related industries," said Li Gang, director-general of the Department of Market Operation and Consumption Promotion of the Ministry of Commerce.
Looking forward, Lu Ting, chief China economist at Nomura, said the trade-in program will boost digital goods sales in the first quarter.
"As Beijing shifts its stimulus focus from investment to consumption, we expect the trade-in program to continue playing a leading role in Beijing's stimulus in 2025," Lu added.
Citing the annual Central Economic Work Conference, Lu said policymakers pledged more specific measures to support consumption, including increasing basic pension payments and raising fiscal subsidies for basic medical insurance.
Lu said his team expects Chinese policymakers to consider an increase in spending on social security for lower-income households. "We especially expect Beijing to significantly increase payments to those rural pensioners (55 percent of total pensioners) whose average monthly pension income is only 225 yuan. Beijing may also waive part of the annual 400-yuan fee on basic medical insurance for low-income individuals," he said.
Considering the pent-up demand for the consumer goods trade-in program, Lu said his team expects the official manufacturing purchasing managers index to rebound to 50.2 in February from 49.1 in January. He estimates that the official nonmanufacturing PMI will increase to 50.5 in February from 50.2 in January, supported by travel and entertainment demand during the Spring Festival holiday.
Vibrant consumer spending data stemming from the 2025 Spring Festival holiday confirm a strong start to the year for the world's second-largest economy.
Domestic travel spending during the holiday reached 677 billion yuan, posting a 7 percent increase from the same period last year, according to data from the Ministry of Culture and Tourism.
Spring Festival box office revenue also enjoyed a positive run, soaring to 9.51 billion yuan — a record high. The animated blockbuster Ne Zha 2 was the star of the show as it became the first Chinese film to gross over 14 billion yuan and secure its place in the top 10 global box office rankings.
Joe Ngai, chairman of management consultancy McKinsey China, said that China's economic future will be shaped by its ability to boost domestic consumption, which he described as "underdeveloped" but possessing significant potential.
"Consumption demand is actually in the bank," Ngai said, explaining that Chinese households have saved up in recent years, creating a reservoir of demand waiting to be unleashed.
Looking ahead, he believes China's next phase of growth will be characterized by a shift from industrial output to stronger consumer demand. "We have always relied on industrial output for GDP growth, but as we continue to boost local consumption, there's a lot of room for growth," he said.
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On prospects for 2025, Wang Yun, deputy director of the Xi Jinping Thought on Economy Study Center, said she believes it is advisable to implement targeted actions to further stimulate consumption, with a focus on closely combining boosting consumption with improving people's livelihoods.
"We should work to ensure stable growth in households' incomes, improve the normal wage growth mechanism for workers and increase support for specific groups," she said. "Meanwhile, we should increase direct fiscal spending on final consumption, drive greater strides in equipment upgrades and trade-in deals for consumer goods and optimize the subsidy issuance process."
Wang added that more efforts should be made to cultivate new consumption formats such as digital and green consumption and innovate diversified consumption scenarios. "We should actively develop emerging sectors such as the debut economy, ice-and-snow economy and silver economy, enhancing the supply-side adaptability to medium and high-end demand."
Contact the writers at ouyangshijia@chinadaily.com.cn
