China's biggest policy meeting underway: What economic reforms are expected
China is hosting its most important policy meeting, the Central Economic Work Conference (CEWC), at the moment. The two-day meeting convenes the Central Committee of the Chinese Communist Party and the State Council of the People's Republic of China. The conference, which ends on December 12, is expected to produce strategies to revive China's economy from a long slump.
Anticipated growth targets and fiscal strategies
Experts expect China to keep its economic growth target at 5%. Larry Hu, chief China economist at Macquarie, told CNBC that "policymakers may leave the 2025 growth target unchanged at around 5% or lower it to 4.5-5%." Analysts also expect a tilt toward a more relaxed monetary policy and an expansionary fiscal strategy, as recent politburo discussions have shown.
China's potential budget deficit expansion
The CEWC is likely to prioritize boosting domestic consumption. According to Bloomberg, at least six brokerages expect China to allow its budget deficit to widen to 4%, the largest in three decades. The move is viewed as part of a strategy for the government to increase spending and stimulate domestic demand, even as it risks a larger deficit.
China's domestic consumption and deflation challenges
China's consumption-driven economy has been affected by persistent deflation. Wholesale inflation has declined for 26 months in a row as of November, reflecting that consumption is yet to pick pace in the country. Although retail sales saw a minor uptick in October, real estate sales have lagged and industrial profits have fallen 10% year-on-year amid continued deflationary pressure.
CEWC's history of economic safeguarding strategies
Historically, the CEWC has served as a platform for China to showcase its commitment to shielding its economy from external threats. In 2008, amid the Global Financial Crisis, then-President Hu Jintao had pledged to sustain economic growth by stimulating domestic demand. Likewise, the 2022 conference emphasized that domestic consumption could help revive the economy from its COVID-19-induced slowdown.
Potential impact of US tariffs on China's economy
The incoming Trump administration's proposed tariffs of up to 60% on Chinese goods could potentially derail China's export-driven recovery. Macquarie Group estimates China would need at least $800 billion in stimulus to offset the impact of a 60% tariff by boosting domestic demand. However, Xing Zhaopeng, ANZ's senior China strategist, told Reuters the politburo's recent stance "points to strong fiscal stimulus, big rate cut and asset buying in 2025."
