Seeking Stability: The 2025 GWR and China’s Economic Strategy

China entered a stagnant economy following the 2008 Global Financial Crisis (GFC). Its economic peak occurred in 2007 when it achieved 14.2 %. Since then, the economy has declined and stagnated at around 5%. Currently, China is grappling with a loss of confidence in private investment, domestic demand, deflationary pressures, high local debt, and youth unemployment in urban areas. Additionally, Trump’s tariff war, disruptions in the global supply chain, and global protectionist measures have hampered the world economy, impacting China’s growth as well, which is detrimental to the world’s second-largest economy. Trump and the European Union (EU) have adopted a more aggressive stance toward China, particularly targeting Chinese electric vehicle (EV) exports. The US has imposed 100 % tariffs on  Chinese EVs, while the EU has levied. This has introduced a layer of complexity to Beijing’s external economic strategy, compelling it to reconsider its trade engagements with Western economies.

In response to these external and domestic challenges, Chinese Premier Li Qiang presented the Government Work Report (GWR) at the Third Session of the 14th National People’s Congress (NPC), the highest legislative body, on March 5, 2025. The report reaffirmed China’s commitment to economic stability, setting a GDP growth target of around 5%, which aligns with the cautious projections of the preceding two years (2023 and 2024). This growth target is set against a backdrop of dual internal and external challenges.

Meanwhile, the International Monetary Fund (IMF) has projected a grim outlook for China’s 2025 growth target, forecasting that China’s GDP growth will decline to 4.6% in 2025 and fall below 3.3% by 2029. In accordance with the recent announcement from the Politburo Standing Committee and the Central Economic Work Conference (CEWC), 11-12 December 2024, the GWR has declared structural adjustments, fiscal support, and regulatory easing in key sectors to enhance consumption, domestic demand, and the high-productivity tech economy.

Growth Target for 2025

• GDP Growth Rate: The target is approximately 5%, which is consistent with the target for 2024. Officially, China achieved a 5% growth target in 2014.
• Urban unemployment rate is expected to rise to 5.5% from 5.1% in 2024, signalling concerns about employment stability.
• New Urban Jobs: Expected to surpass 12 million, aligning with 2024’s achievement of 12.56 million.
• Consumer Price Index (CPI) Growth: Projected to increase to 2% in 2025, up from only 0.2% in 2024, indicating efforts to enhance domestic demand.
• Grain Output: Estimated at approximately 700 million metric tons, ensuring national food security.
• Energy Consumption per Unit GDP: Targeted 3% reduction, underscoring China’s continued commitment to its green transition.

Local Economy and Debt Management

China’s economic outlook is further complicated by ongoing challenges in its property sector, local government debt burdens, and sluggish household consumption. The ‘Three Red Lines’ policy, introduced to curb excessive leverage among property developers, weighs heavily on the real estate sector. Major developers remain financially constrained despite marginal policy relaxations, limiting their capacity to stimulate growth. The collapse of key real estate firms and declining housing demand have led to a protracted slowdown in the sector, which has historically contributed significantly to China’s GDP.

Moreover, local government debt remains a significant concern. Several provincial administrations have faced challenges in financing infrastructure projects, resulting in an increasing dependence on central government bailouts. The 2025 GWR addressed these fiscal constraints by allocating 735 billion yuan for central government investment and issuing 300 billion yuan in ultra-long special treasury bonds to stimulate economic activity, particularly in the consumer goods trade-in sector.

To mitigate risks in the financial sector, Premier Li pledged to enhance oversight of local government financing vehicles (LGFVs) and implement stricter debt restructuring measures. This policy shift indicates that Beijing recognises the urgent need to balance economic stimulus with financial prudence. The effectiveness of these measures will be crucial in determining whether China can avert a broader financial crisis.

Investment to Consumption-Driven Growth

One of the most significant takeaways from the 2025 GWR is Beijing’s strategic shift toward boosting domestic consumption. For the first time, household spending has been prioritised over traditional investments in high-end manufacturing and digital infrastructure. This change reflects increasing concerns about deflationary risks and the necessity of sustaining economic momentum amid declining external demand.

The government has announced a series of measures to stimulate household consumption, including tax incentives, enhancements to social security (written by Wang Xiaoping in Quishi, Party Theoretical magazine), and increased access to consumer credit. Additionally, China has signalled a more business-friendly approach, especially in its interactions with the private sector.

In addition to boosting domestic demand and local consumption, on February 17, 2025, President Xi Jinping met with leading entrepreneurs at a symposium (On this issue, I wrote for the Diplomat Magazine), including Alibaba founder Jack Ma, marking a rare engagement with private sector leaders. This move indicates a significant policy shift from the Xi Jinping side, which is meeting with entrepreneurship for the first time since 2018.

However, despite these policy changes, uncertainties remain regarding the sustainability of consumption-led growth. Chinese households continue to maintain high savings rates, driven by concerns about economic stability and limited social welfare provisions. Additionally, wage growth has stagnated in several sectors with minimal increase in 2024, restricting consumer spending capacity. Whether Beijing can successfully transition to a more consumption-driven economy will depend on the effectiveness of its fiscal and monetary policies in addressing these underlying concerns.

China’s 2025 GWR outlines a cautious yet pragmatic approach to economic management, balancing growth aspirations with regulatory adjustments. However, mounting domestic and external pressures—including the protracted U.S.-China trade conflict, high local government debt, and a fragile property sector—pose significant risks to China’s economic stability. The government’s shift toward consumption-led growth and increased fiscal support suggests an awareness of these vulnerabilities. While these measures could help alleviate some economic challenges, their effectiveness remains uncertain.