As China faces looming tariff challenges and seeks to navigate potential economic headwinds in 2025, economists from leading investment banks predict the country has ample room to implement bolder macroeconomic adjustments. These could include additional subsidies for consumers and structural reforms, designed to support the nation’s growth amidst external pressures.
In an exclusive interview with China Daily, Wang Tao, head of Asia economics and chief China economist at UBS Investment Bank, explained that the Chinese government’s strong balance sheet provides the flexibility needed to introduce larger stimulus measures. Wang emphasized that fiscal policy support and income subsidies for households are likely to be on the agenda, with such measures possibly announced as early as the National People’s Congress in March 2025.
Wang’s remarks come ahead of the upcoming Central Economic Work Conference, expected in mid-December, where China’s economic policy for 2025 will be outlined. Economists are watching closely, as the country faces external challenges, particularly from US trade policies under President-elect Donald Trump. Trump has proposed a 25% tariff on Chinese goods, adding uncertainty to China’s export market. With these tariffs set to take effect in the second half of 2025, economists predict they could dampen China’s exports and weaken the yuan against the US dollar.
Experts warn that the combination of external tariff pressures and domestic challenges, such as adjustments in the property market, could slow China’s economic growth in 2025. Wang believes that if stimulus measures are not substantial and timely, growth could fall below this year’s expected rate of 5%. However, she remains optimistic that the government’s current policy actions, coupled with additional fiscal support, will stabilize domestic demand and build confidence in the economy.
Wang’s team at UBS predicts that fiscal support will be expanded, with a possible increase in the fiscal deficit by 2% of GDP in 2025, amounting to more than 2 trillion yuan ($276 billion). While concerns about China’s debt levels persist, Wang argued that, like past economic crises in Europe and Japan, robust fiscal support could reduce the long-term debt burden by boosting economic growth.
Premier Li Qiang recently reiterated China’s commitment to counteracting economic decoupling and promoting sustained growth, previewing policy measures likely to be unveiled at the Central Economic Work Conference. Economists, including Shan Hui of Goldman Sachs, expect the conference to announce incremental policy support, including subsidies for second-child families, increased rural pensions, and enhanced unemployment insurance.
Additionally, the focus will be on structural reforms aimed at improving efficiency and boosting long-term growth. Wang noted that key reforms could involve better protections for the private sector, improvements to state-owned enterprises, and reforms to the hukou (household registration) system to benefit migrant workers.
By accelerating both fiscal support and structural reforms, China aims to not only cushion short-term economic challenges but also foster greater confidence in its economic trajectory for the future.