China has established an economic growth target for this year of around 5 percent and has committed to injecting billions of dollars into its struggling economy, which is currently contending with a trade war with the US. Its leaders revealed the strategy as thousands of delegates gather for the National People’s Congress, a parliamentary body that largely endorses resolutions made in private discussions. However, this week-long assembly is closely monitored for insights into potential shifts in Beijing’s policies—making this year particularly noteworthy.
President Xi Jinping faces significant challenges
President Xi Jinping has already been grappling with persistently low consumption, a property crisis, and unemployment, prior to Donald Trump’s recent 10 percent tariff on Chinese imports that took effect on Tuesday. This follows an earlier 10 percent tariff instituted in early February, bringing the total US tariff to 20 percent. This increase impacts a rare area of strength for the Chinese economy: exports.
Retaliatory measures from Beijing
In response, Beijing retaliated almost immediately on Tuesday, mirroring its actions from the previous month. The Chinese government announced countermeasures that included tariffs ranging from 10 percent to 15 percent on certain agricultural imports from the US. This is particularly crucial because China serves as the largest market for these commodities, including American corn, wheat, and soybeans.
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Domestic demand as economic engine
At the commencement of this week’s meeting, known as Two Sessions, China pledged to position domestic demand as the “main engine and anchor” of its economic growth. Beijing successfully met its 5 percent target for the last two years; however, this growth was largely fueled by robust exports, which resulted in a nearly trillion-dollar record trade surplus.
Consumption and household demand
On Wednesday, Chinese Premier Li Qiang noted that consumption has been lackluster and vowed to “vigorously boost” household demand. “Domestically, the foundation for China’s sustained economic recovery and growth is not strong enough.” He added, “Internationally, changes unseen in a century are unfolding across the world at a faster pace,” highlighting the rise of protectionism globally.
Measures to stimulate spending
Beijing has already implemented initiatives to encourage greater consumer spending, including programs that allow citizens to trade in and replace household items such as kitchen appliances, cars, phones, and electronic gadgets. The government aims to increase disposable income for ordinary Chinese citizens and reduce the country’s dependence on exports and investments.
Fiscal strategies and spending commitments
The government plans to issue 1.3 trillion yuan (approximately $179 billion; £140 billion) in special treasury bonds this year to finance its stimulus efforts. Local governments will also be permitted to elevate their borrowing capacity to 4.4 trillion yuan, up from 3.9 trillion yuan, as per the annual “Work Report.” In an unusual move, Beijing raised its fiscal deficit—the gap between government spending and revenue—by one percentage point to 4 percent of gross domestic product (GDP), marking the highest level in decades.
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Employment and high-tech support
This increase signals Beijing’s determination to enhance spending in order to bolster growth. Historically, it has aimed to maintain the deficit at or below 3 percent of GDP to showcase fiscal discipline. Additionally, the government has set a goal to create over 12 million jobs in urban areas, with an unemployment target of around 5.5 percent for 2025, compared to the 5.1 percent recorded last year. The administration also committed to providing additional support for high-tech industries, stabilizing the property market, and expanding elderly care programs for its aging population.
On Wednesday, China also declared a 7.2 percent increase in its national defense budget, maintaining the same growth rate as the previous year.
