China’s policy outlook for 2025 has started to crystallize, with the Standing Committee of the National People’s Congress (NPC) taking critical steps to buffer against global economic uncertainties. According to Standard Chartered economists Shuang Ding and Hunter Chan, China’s focus has shifted from immediate growth risks in 2024 to a more cautious, long-term strategy for the coming year.
China’s Strategic Shift: Focus on 2025
China is signaling patience in its response to international pressures, particularly from the U.S. presidential election results. With growth risks subsiding, policymakers are reserving their resources to tackle broader economic shifts that may arise in 2025. A significant fiscal package introduced in mid-October has already injected 1.4 trillion yuan ($192 billion) into the economy, positioning China for a rebound in Q4 2024.
According to Standard Chartered, China’s policymakers have grown confident in meeting the 2024 growth target of 5% due to this recent fiscal support, which aligns with an uptick in official and Caixin PMI indexes, signaling expansion.
Key Measures to Strengthen China’s Financial Sector
As the NPC’s session wraps up, expectations are high for policies that will stabilize local government debt and enhance the banking sector. Analysts believe the NPC will approve a special quota of around 1 trillion yuan for central government bonds, which will help replenish capital in major banks. Additionally, a substantial local bond quota, ranging from 6 to 10 trillion yuan, is anticipated to facilitate a debt swap that could stretch over three to five years.
This move is crucial for supporting local governments, which have been weighed down by pandemic-induced debt. However, a significant adjustment to the 2024 budget remains unlikely, with larger fiscal measures potentially awaiting the December Central Economic Work Conference (CEWC).
Impact of the U.S. Election on China’s Fiscal Strategy
The U.S. election results play a considerable role in shaping China’s economic strategy, given the potential for trade policy shifts. If Kamala Harris prevails, China may see a modest budget deficit increase to 3.5% of GDP (about 4.8 trillion yuan) in 2025, up from 3.4% this year. However, a Trump victory could prompt an additional 1-2 trillion yuan in spending to counteract the impact of possible U.S. tariffs on Chinese goods.
