As China wraps up its National People’s Congress, one big question remains: How far will the government go to revive its slowing economy in 2025? While the Congress discussed several key issues, including boosting investment and consumer spending, it’s clear that much remains uncertain.
In this post, I’ll break down the key takeaways from the Congress, the current state of China’s economy, and what the future holds for one of the world’s largest economies.
A Look at China’s Economic Struggles
China’s economic growth has been slowing in recent years, marked by several key issues:
- Property Crisis: A prolonged property slump has weakened consumer confidence.
- Trade War with the US: Tensions with the United States, particularly over tariffs, have compounded these issues.
- Private Sector Struggles: Regulatory crackdowns and uncertainty have left many private businesses in a precarious position.
In the face of these challenges, China’s leaders are focused on ways to stimulate growth. But with numerous factors at play, the ultimate impact of these efforts remains to be seen.
National People’s Congress: A Call for Economic Revival
One of the recurring themes during this year’s Congress was the urgent need to boost investment and consumer spending. These issues are seen as critical to reigniting economic growth. However, the measures discussed so far may not be enough to drive the desired results, especially given the current uncertainties.
Key Proposals to Stimulate Growth:
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Economic Growth Target of 5%
China has set an ambitious target of around 5% growth for the year. While this is a modest goal compared to past years, analysts are divided on whether the measures outlined at the Congress will be sufficient to reach it. -
Increased Borrowing
The government has proposed borrowing more money for various initiatives. This includes offering rebates to consumers who trade in old cars and appliances for new ones. But much of the borrowing will go towards supporting the housing market and local governments weighed down by debt. -
Subsidies and Stimulus
Efforts to address sluggish demand include government subsidies for consumers and businesses. This includes measures designed to spur consumer spending and provide relief to struggling industries.
However, experts remain skeptical about how effective these initiatives will be in stimulating sustainable growth. Jeremy Zook, a lead analyst at Fitch Ratings, notes that it remains unclear how much of an impact these measures will have on underlying demand and the economy’s long-term recovery.
Private Businesses: A Focus on Revitalisation
A key area of focus at this year’s Congress was the private sector. In recent years, China’s regulatory crackdowns have caused uncertainty, particularly among entrepreneurs and investors.
President Xi Jinping seems determined to send a strong message about the importance of private enterprises. There are several steps being considered to improve the business environment:
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Better Market Access and Financing
Xi has advocated for improved access to market opportunities and financing for private companies. This includes expanding financing options for businesses and easing the regulatory burden. -
Protection of Property Rights
One of the proposed legislative changes would improve property rights protection for private enterprises, which has been a major concern in recent years. -
Lending to Private Companies
Private businesses are set to benefit from increased access to loans and bond financing. Premier Li Qiang outlined the government’s commitment to ensuring better financing opportunities for private enterprises.
But the real question is whether these reforms will be enough to restore confidence in China’s private sector. Neil Thomas, a fellow at the Asia Society Policy Institute, stated that Xi’s efforts are aimed at sending a message to both private entrepreneurs and local governments. These reforms are intended to send a clear signal that private businesses are vital to China’s economic health.
Trade War Concerns: How Will the US Factor Into China’s Economic Recovery?
The trade war with the United States remains one of the most pressing issues facing China’s economy. Over the past few years, the US has raised tariffs on Chinese imports, significantly impacting trade between the two countries. While China has diversified its export markets, the US remains a vital trading partner.
Despite efforts to reduce dependence on US markets, China is still at the mercy of the global demand for its products. Much of China’s export-driven growth relies on the strength of the US economy.
If the US economy falters or if President Trump escalates tariffs further, the consequences for China’s growth could be severe. China’s Commerce Minister Wang Wentao has warned that the country is ready to “fight to the end” if the US continues down its current path. This rhetoric highlights the tension between the two economic giants and the uncertainty surrounding future trade relations.
The “Rat Race” and Overcapacity: An Ongoing Problem
The government also addressed the issue of overcapacity in certain sectors, particularly in the green energy industry. The rise of numerous green energy firms has resulted in excessive competition and price wars, which ultimately harm the industry.
The term “neijuan” or “involution” was used during the Congress to describe this unproductive competition. The Chinese government is looking at ways to regulate and reduce the impact of these price wars. As Lei Jun, CEO of Xiaomi, put it, these firms are locked in extremely cruel competition, which negatively impacts the industry.
While the government has introduced subsidies to encourage growth in the green energy sector, it is clear that more needs to be done to address the overcapacity issue and ensure long-term stability in the industry.
The Road Ahead: Will China’s Economy Bounce Back?
As we look ahead, China faces several challenges in its efforts to revive economic growth. The government’s ambitious goals may be achievable with the right mix of reforms, investment, and market confidence. However, it is still unclear how effective the proposed measures will be in achieving sustainable economic recovery.
The ongoing trade tensions with the US, combined with the property crisis and other domestic challenges, mean that China’s economic future remains uncertain.
One thing is clear: The success of China’s growth strategy will depend heavily on the ability of policymakers to navigate these challenges and translate their bold plans into real-world results.
Relevant Links for Further Reading
- China’s Economic Reforms and Growth Strategy
- National People’s Congress 2025
- Impact of Trade War on China’s Economy
Photo credit: France 24
