China keeps 5pc growth target, ramps up spending to counter US tariffs, deflation risks

Nevin Al Sukari - Sana'a - Premier Li Qiang will deliver a speech at the NPC later on Wednesday, detailing China’s policies for the rest of the year. — File pic via Bernama

BEIJING, March 5 — China kept its economic growth target for this year unchanged at roughly 5 per cent, committing more fiscal resources than last year to fend off deflationary pressures and mitigate the impact of rising US trade tariffs.

The target, which confirms a December Reuters report, was included in a government document prepared for the annual meeting of the National People’s Congress (NPC), China’s rubber-stamp parliament.

Premier Li Qiang will deliver a speech at the NPC later on Wednesday, detailing China’s policies for the rest of the year.

An escalating trade war with US President Donald Trump’s administration is threatening to crimp China’s economic jewel, its sprawling industrial complex, at a time when persistently sluggish household demand and the unravelling of the debt-laden property sector are leaving the economy increasingly vulnerable.

Trump has also dangled tariffs at a long list of countries, including some which would consider themselves staunch US allies, threatening a decades-old global trade order that Beijing has built its economic model around.

Pressure has been building on Chinese officials to introduce policies that put more money into consumers’ pockets and reduce the world’s second-largest economy’s reliance on exports and investment for growth.

China also aims for a budget deficit of 4per cent of gross domestic product (GDP) in 2025, up from 3per cent in 2024, showed the report, which promised a “special action plan” to stimulate consumption.

Beijing plans to issue 1.3 trillion yuan ($179 billion) in special treasury bonds this year, up from 1 trillion in 2024. Local governments will be allowed to issue 4.4 trillion yuan in special debt, up from 3.9 trillion.

From the central government’s special debt funds, 300 billion yuan will support a recently-expanded consumer subsidy scheme for electric vehicles, appliances and other goods.

Economists have been urging Beijing to engineer a long-term restructuring of resource allocation in the economy with more profound measures that reimagine its taxation, land and financial systems to weave a stronger social safety net.

“With deflationary pressures becoming entrenched against the background of an unfavourable external environment ... boosting domestic household consumption demand is a key priority,” said

“One-off schemes might help at the margin, but durable measures to provide income support and strengthen the safety net are essential.”

Beijing also plans to use 500 billion yuan of the special debt funds to re-capitalise major state banks and 200 billion yuan on supporting manufacturing equipment upgrades.

Innovation drive

China’s 5per cent growth rate last year, which the government only reached with a late stimulus push, was among the world’s fastest, but it was hardly felt at street level.

While China runs a trillion dollar annual trade surplus, many of its people are complaining of unstable jobs and incomes as their employers cut prices - and business costs - to stay competitive in external markets.

Chinese producers, facing weak demand at home and harsher conditions in the United States, where they sell more than $400 billion worth of goods annually, have no choice but to rush to alternative export markets all at the same time.

They fear this would intensify price wars, squeeze their profitability, and raise the risk that politicians in those new markets will feel compelled to erect higher trade barriers against Chinese goods to protect domestic industries.

Since Trump took office in January, his administration has so far added an extra 20 percentage points on existing import tariffs for Chinese goods, with the latest 10-point increment having kicked in on Tuesday.

“We worry that they will add another 10per cent and then another 10per cent,” said Dave Fong, who manufactures school bags, talking teddy bears, stationery and consumer electronics in China.

“That’s a big problem.”

China on Tuesday retaliated against the fresh US tariffs.

Since the pandemic, China has primarily placed its future growth bets on what it calls “new productive forces” rather than on its 1.4 billion consumers, pouring resources into advanced manufacturing, hoping to close the technological gap with geopolitical rivals.

In the government report, Beijing pledged to continue supporting high-tech industries and improve investment efficiency.

Electric vehicle makers such as BYD and AI platform Deepseek have taken to the world stage with plenty of pizzazz.

But Alicia Garcia-Herrero, chief Asia Pacific economist at Natixis, says technological aspirations and consumer demand growth are “competing priorities” and finding a balance between them “will be crucial for China to avoid the prolonged stagnation experienced by Japan.”

“The tangible impact of this innovation drive on growth, specifically through increased productivity, is not yet visible,” she said.

“While industrial policy and technological advancement are important, China must address its fundamental imbalances.” ($1 = 7.2651 Chinese yuan renminbi). — Reuters