China ramps up stimulus to guard economy from changes 'unseen in a century', boosting stock markets
China and Hong Kong shares gained on Wednesday buoyed by Beijing's economic growth target and pledges of more support for domestic consumption and the tech industry.
Chinese Premier Li Qiang speaks during the opening session of the National People's Congress at the Great Hall of the People in Beijing, China, on Mar 5, 2025. (Photo: AP/Andy Wong)
BEIJING: China unlocked more fiscal stimulus on Wednesday (Mar 5), 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 per cent-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 US President Donald Trump's administration is threatening to crimp 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 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 per cent growth target for 2025 and a larger budget deficit plan of about 4 per cent of economic output that Li presented to parliament confirmed a December Reuters report.
Li also said Beijing plans to issue 1.3 trillion yuan (US$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 (US$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 per cent of annual economic output, about 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 PER CENT"
Chinese producers, facing weak demand at home and harsher conditions in the United States, where they sell more than US$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 per cent and then another 10 per cent," said Dave Fong, who manufactures school bags, talking teddy bears, stationery and consumer electronics in China. "That’s a big problem.”
China's 5 per cent 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.
CHINA, HK SHARES GAIN
China and Hong Kong shares gained on Wednesday buoyed by Beijing's economic growth target and pledges of more support for domestic consumption and the tech industry.
The blue-chip CSI300 Index and the Shanghai Composite both added 0.3 per cent at the midday break after swinging between gains and losses in the morning.
Hong Kong's Hang Seng Index added 1.7 per cent, while the Hang Seng Tech Index climbed 1.9 per cent.
The markets were also boosted by the government's promise of support for the application of large-scale AI models, with Premier Li mentioning AI models for the first time in his government work report, after the global fanfare over Chinese AI startup DeepSeek.
Policymakers promised a "special action plan" to stimulate consumption and set aside 300 billion yuan to support a recently-expanded consumer subsidy to revive sluggish spending at home as exports came under mounting pressure from US tariffs.
The policies were largely in line with expectation and the market reaction is quite positive, said Jason Chan, senior investment strategist at Bank of East Asia.
"The policy direction also clearly stressed support for AI and tech sector, which are lending more help to the Hong Kong markets where they have bigger weightings."
The CSI AI Industry Index gained as much as 0.6 per cent and the consumer discretionary sector jumped 0.4 per cent. The CSI Banks Index advanced 1.7 per cent on Beijing's plans to issue special debt of 500 billion yuan to re-capitalise major state banks.
The tech-focused policy tone set at the NPC gathering could offer renewed support to China's rally.
Chinese H-shares have surged as much as 31 per cent from January's trough to a three-year high as DeepSeek's launch of a low-cost AI model set off a re-rating in the beaten-down market and triggered fund rotations.
