China 2025 outlook: Time to tap the policy space – Standard Chartered

With another trade war looming, China is going to dig deeper into its pockets to stimulate demand and likely to keep its growth target at c.5% for 2025; budget deficit may be widened to 3.5% of GDP. 2025 growth forecast is maintained at 4.5%, as stimulus should partially offset higher tariffs, Standard Chartered’s economists note.  

The central bank appears prepared to inject sufficient liquidity

“President-elect Trump announced higher tariffs on Mexico, Canada and China even before his inauguration. We think it is now unrealistic for China to continue to count on external demand to ride out the housing market correction. Net exports’ contribution to GDP growth could turn negligible in 2025 from over 1ppt in 2024, according to our estimate. We do not think the authorities will respond to tariff increases with substantial CNY devaluation, and expect consumption-enabling policy stimulus to mitigate the tariff impact.”

“The December Central Economic Work Conference (CEWC) will likely set a pro-growth policy tone. An ambitious growth target is likely to be adopted to anchor market expectations and change the deflationary mindset. We expect the official budget deficit to be widened to 3.5% of GDP in 2025 from 3.0% in 2024, and a 25-30% increase in central and local special bond issuance to finance additional spending and facilitate bank recapitalisation and the local debt swap programme. We estimate that a positive fiscal impulse would boost growth by 0.3-0.5ppt. The central bank appears prepared to inject sufficient liquidity to absorb the expected surge in government bond supply, and moderately cut policy rates to prevent a rise in real interest rates.”

“We expect the government to introduce more measures to boost housing demand and contain supply, including deploying additional resources to support ‘whitelist’ projects and curtail housing inventory. We estimate that a moderation in the property investment decline to 5% in 2025 from c.10% in 2024 would reduce the growth drag by c.0.3ppt.”