China unlocked more fiscal stimulus on Wednesday, promising greater efforts to support consumption and cushion the impact of an escalating trade war with the United States on an economy that Beijing is determined to grow by another 5%-or-so this year.
Premier Li Qiang, in a speech at the opening of the annual meeting of China’s parliament, warned that “changes unseen in a century are unfolding across the world at a faster pace”.
“An increasingly complex and severe external environment may exert a greater impact on China in areas such as trade, science, and technology,” Li said.
The trade war with U.S. President Donald Trump’s administration is threatening 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, disrupting a decades-old global trade order that Beijing has built its economic model around.
Pressure has been building on Chinese officials for consumer-focused stimulus to fend off deflationary pressures and reduce the world’s second-largest economy’s reliance on exports and investment for growth.
The term “consumption” was mentioned 31 times in Li’s report, up from 21 times last year, while “technology” received 28 mentions, slightly up from 26 in 2024, according to Guotai Junan analysts.
“For the first time, boosting consumption has been elevated to the top priority among 2025’s major tasks, displacing technology from its usual leading position,” said Tilly Zhang, technology analyst at Gavekal Dragonomics.
“It’s not a pivot from the previous industrial policy, but pursuing a more balanced” macroeconomic framework, Zhang said.
However, China said more than a decade ago that it wants to shift to a more consumer-driven growth model, without making significant progress towards that goal, and investors aren’t placing bets on this change in tone.
The CSI AI Industry Index gained 1.1% and the Hang Seng Tech Index climbed 3%. The consumer discretionary sector rose 0.6%.
The recent emergence of artificial intelligence platform Deepseek has boosted market sentiment in China this year.
AI advancement was given more space in Li’s speech this year compared with 2024, with promises to foster its application in sectors including electric vehicles, smartphones and robots.
ECONOMIC TARGETS
The roughly 5% growth target for 2025 and a larger budget deficit plan of around 4% of economic output that Li presented to parliament confirmed a December Reuters report.
Li also said Beijing plans to issue 1.3 trillion yuan ($179 billion) in ultra-long special treasury bonds this year, up from 1 trillion yuan in 2024. Local governments will be allowed to issue 4.4 trillion yuan in special debt, up from 3.9 trillion yuan.
Separately, Beijing plans to raise 500 billion yuan to re-capitalise major state banks.
Analysts say the higher debt and spending figures aim to cushion the impact of tariffs.
“We also expect the authorities to adjust the budget by mid-year if the growth momentum is hit by trade disputes,” ANZ analysts said.
Beyond the 300 billion yuan allocated to a recently-expanded consumer subsidy scheme for electric vehicles, appliances and other goods, Li’s speech contained little concrete support for households.
“That’s been super-successful in boosting spending on those types of goods,” said Harry Murphy Cruise, head of China and Australia economics at Moody’s Analytics.
“But outside of that, spending is still very weak,” he added, decrying a lack of detail on other consumer policies.
Welfare tweaks were nominal, with the monthly minimum pension raised by 20 yuan to 143 yuan ($20).
Economists have been urging Beijing to go beyond subsidies and bolster its feeble welfare system, while engineering a long-term restructuring of resource allocation in the economy with more profound measures that reimagine its taxation, land and financial systems.
China’s household spending is less than 40% of annual economic output, some 20 percentage points below the global average. Investment, by comparison, is 20 points above.
Li pledged to address the supply-demand gap and implement fiscal reforms that improve local government revenues and stimulate household spending. Another government official said separately that such policies could be announced later this year.
‘THEN ANOTHER 10%’
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, are rushing to alternative export markets all at the same time.
They fear this would intensify price wars, squeeze profits, and raise the risk that politicians in those markets will feel compelled to erect higher trade barriers against Chinese goods to protect domestic industries.
Washington has so far added an extra 20 percentage points on existing tariffs for Chinese goods, with the latest 10-point increment enforced on Tuesday, drawing Beijing’s retaliation.
“We worry that they will add another 10% and then another 10%,” said Dave Fong, who manufactures school bags, talking teddy bears, stationery and consumer electronics in China. “That’s a big problem.”
China’s 5% growth rate last year, which it 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 abroad.
“Further expanding the trade surplus is no longer a good strategy, so we need to rely on internal demand for growth,” said Andrew Xia, chief economist at Shangshan Capital Group.
(Reporting by Liz Lee, Kevin Yao, Ethan Wang, Ellen Zhang, Joe Cash, Qiaoyi Li, Liangping Gao, Yukun Zhang, Ziyi Tang, Liam Mo and Yuhan Lin)
