China's GDP Target for 2025 May Remain at 5%

China's goal for GDP growth in 2025 could be set at about 5%, similar to this year, as leaders plan more effective economic measures to address ongoing challenges and stimulate growth, according to a senior economist.

In an interview, Luo Zhiheng, chief economist at Yuekai Securities, emphasized that to reach this target, both fiscal and monetary policies need to be implemented swiftly and aggressively. This proactive approach is aimed at anticipating market trends and creating a more synchronized economic strategy.

These remarks followed a significant meeting where Chinese policymakers concluded their plans for the coming year. They adopted a "more proactive" fiscal policy for the first time and adjusted their monetary stance towards a "moderately loose" approach. This decision marks a departure from a long-standing period of cautious monetary policy lasting 14 years.

China is currently grappling with various economic issues, such as weak domestic demand and external pressures, including global economic downturns and trade conflicts with the United States. Luo pointed out the need for a proactive and countercyclical strategy to boost growth.

Additionally, it has been clarified that the country will likely increase its deficit ratio for 2025, potentially raising it to 4% of GDP, compared to the 3% target set for 2023.

Luo explained that the deficit ratio signifies more than just the scale of fiscal support; it also reflects the government's resolve to strengthen the economy and tackle ongoing hurdles.

To better manage uncertain fiscal revenues and the issuance of special bonds, Luo suggested that policymakers should be ready to adjust budgets promptly throughout the year to accelerate spending growth and enhance the countercyclical role of fiscal policies.

Furthermore, there is an initiative to broaden the use of local government special-purpose bonds, with local authorities being granted greater autonomy in their deployment. This change aims to improve the effectiveness of fiscal instruments.

Alongside fiscal measures, monetary easing efforts, like reducing the reserve requirement ratio and interest rates, will be crucial to the countercyclical response. Luo noted that the People's Bank of China has approximately 0.5 percentage points of room to make further interest rate cuts in 2025, balancing support for economic growth with factors such as the exchange rate and bank profitability.

The current average reserve requirement ratio for financial institutions stands at around 6.6%, allowing for potential reductions in line with global central bank policies.

It’s important to implement these countercyclical measures promptly to shape market expectations and strengthen domestic demand, rather than simply responding to changing conditions.

Additionally, increasing domestic demand is a key priority for the government next year. The transition from an investment-led to a consumption-driven economy is seen as essential, albeit a gradual process. Luo emphasized that investment and consumption should work together to create a balanced and sustainable growth dynamic.

GDP, China, Economy