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China—Growth steady ‘around 5%’ despite rising external pressures
China set a real GDP growth target of ‘around 5%’ for 2025, for a third consecutive year. This target is relatively ambitious given a current reliance on exports to drive growth and mounting trade barriers. However, additional stimulus measures and incremental structural reforms were announced to offset persistent low consumption and deflationary pressures. The OECD upgraded its growth projection marginally to 4.8% for 2025 following the announcement of stimulus, but growth is expected to slow to 4.4% in 2026.
The stimulus comes with a record high fiscal deficit target at 4% of GDP and measures to improve consumption. China has one of the highest national savings rates in the world, but efforts to build the social protection system could reduce inequality and slowly shift entrenched preferences for savings over consumption (Chart). Steps toward subsidised childcare, free preschool, improved parental leave, cash for work schemes, pension reform and enabling the ‘silver economy’ are designed to build consumer confidence and spending. China’s tech sector will continue to grow with stimulus funding allocated to support development of frontier technologies (AI, quantum computing, 6G), new applications of existing technology (robotics, digitalisation), and collaboration between researchers and industry. Durable goods will benefit from expansion of ‘trade-in’ subsidies that encourage households to replace old appliances and cars with newer ones.
Downside risks remain prominent. The target was set in the context of a more uncertain external environment, with additional US tariffs on Chinese imports introduced this year, amounting to 20% on 4 March. Trade measures will compound headwinds already facing the Chinese economy, which affects Chinese demand for Australian commodities used in manufacturing and construction. However, Chinese retaliatory measures against the US, currently concentrated in the agricultural, critical minerals, resources and energy sectors, may possibly present some opportunities for Australian exporters.
