China touts policy space in shielding economy from trade war

Buildings in Pudong's Lujiazui Financial District in Shanghai. Photographer: Raul Ariano/Bloomberg

China’s top economic officials said they have carved out plenty of room to act in the face of uncertainty and risks, after their country set an ambitious growth target for 2025 despite higher US tariffs.

The central government has ample fiscal policy tools and space to respond to possible domestic and external challenges, Chinese Finance Minister Lan Fo’an said at a press briefing in Beijing on Thursday on the sidelines of the annual legislative session.

China will study and roll out new policies in a timely manner, he said at a panel alongside four other key policymakers including People’s Bank of China Governor Pan Gongsheng.

The government on Wednesday said it will aim to expand China’s economy by about 5% for 2025, maintaining the same target for the third straight year. Comments made by officials at the briefing suggest policymakers are willing to step up stimulus to achieve it.

The PBOC will implement a moderately loose monetary policy, Pan said. He repeated an earlier pledge to “pick the time” to cut interest rates and lower the reserve requirement ratio for lenders based on domestic and overseas conditions.

The central bank will also explore new structural tools, he said, likely hinting at more sectors to be offered its low-cost relending credit.

US tariffs are threatening to stifle the export engine at the core of the Chinese economy, while domestic demand remains sluggish in the face of a property slump and grim job market.

Although President Xi Jinping has signaled he wants to transform China’s growth model to make it more reliant on consumption rather than investment, details remained scarce in the government’s annual work report released on Wednesday.

“We can overcome and resolve the difficulties and problems,” said Zheng Shanjie, chairman of the National Financial Regulatory Administration, China’s top economic-planning agency. “We have the courage to face squarely the risks and challenges and have the foundation to resolve the problems.”

In outlining China’s economic blueprint for 2025, the government unveiled its highest official fiscal deficit target in over three decades. Despite that decision — which implies more public borrowing and spending to support consumption and infrastructure — economists still expect Beijing to roll out more measures if the trade war with the US escalates.

Zheng said the government will “soon” publish its action plan for a special program to boost consumption. A state fund will be set up to drive almost 1 trillion yuan ($138 billion) of investments into innovative startups, he said, as the country doubles down on promoting technological innovation.

The authorities will push inefficient capacity to exit the market, Zheng said, a move apparently aimed at addressing intense competition that’s weighing on prices. They will also accelerate the repayment of arrears owed to companies, he added.

For the central bank, the focus since the beginning of the year has been on defending the yuan against depreciation pressure. As a result it’s had to avoid using its more high-profile easing tools and even allowed market liquidity to tighten.

Speaking on Thursday, Pan said there was room to lower the amount of cash banks must set aside in reserves.

The PBOC is studying the option of reducing the rates it charges for structural lending tools, which offer banks cheaper liquidity for credit to favored sectors. It will also expand the quota of a relending tool targeting technology innovation and upgrading to between 800 billion yuan and 1 trillion yuan, from 500 billion yuan previously, he said.

In an effort to curb expectations of abrupt easing moves, Pan said on Thursday that China’s monetary stance has already been accommodative and relatively loose in the past few years.

He contrasted China’s supportive approach with the posture of the Federal Reserve, calling its policy “restrictive” since US rates remain high despite several cuts last year.

Given the remarks made by Pan, Goldman Sachs Group Inc. economists now see downside risks to their forecast of rate cuts starting in the second quarter and a RRR reduction in the first three months of the year, according to a research note on Thursday.

China’s economy looks to have had a stable start to the year, with factory activity returning to expansion in February after a dip in January. To get a fuller picture of the state of the economy, investors will need to wait for official data on trade to be released Friday, as well as broader figures covering the first two months set to be announced later this month.

In elaborating on policies aimed at spurring consumption, Lan said the government will provide childcare subsidies for families with young kids and set up a state aid mechanism to support pre-school education.

Loans provided at rates subsidized by the government will be offered for personal consumption in certain areas, and for businesses in sectors including catering, accommodation, elderly care, and housekeeping, he said.

Chinese officials believe that childcare is one of the few areas where cash handouts to consumers will get spent rather than saved. The financial aid for families to raise children is likely also intended at addressing China’s demographic challenges. The nation’s population shrank for the third straight year in 2024, posing a long-term threat to economic prosperity.

China’s 10 trillion-yuan program to refinance hidden liabilities at local governments has “significantly” reduced their debt risks, lowered their interest payment burden and freed up resources for the authorities to support economic growth, Lan said.

Meanwhile, he warned officials against trying to add new off-balance-sheet borrowing. China will adopt “an iron discipline so that no new hidden debt shall be created,” Lan said.

The number of so-called local government financing vehicles — used to borrow on behalf of provinces, cities and counties to fund infrastructure investment — shrank by nearly 4,700 in the fourth quarter, making up more than two-thirds of the total removed last year, Lan said.

At their joint appearance on Thursday, the senior Chinese officials also put on a brave face as their country confronts pressure from Donald Trump.

The government is speeding up its study of new measures to support exporters and will introduce the policies in a timely manner, according to Minister of Commerce Wang Wentao. China is seeking to sign free-trade agreements with more countries, he said.

“We didn’t put all eggs in one basket, which underlines the resilience of China’s foreign trade,” Wang said. “The East will light up if the West doesn’t. The South will shine if the North doesn’t.”