'Bolder' steps set to navigate uncertainties

Key meeting expected to outline nation's economic policy orientation for 2025

China has "larger room to take bolder action" in macroeconomic adjustments to navigate looming tariff uncertainties, with more subsidies to consumers still possible in 2025, said economists from leading investment banks.

In an exclusive interview with China Daily, Wang Tao, head of Asia economics and chief China economist at UBS Investment Bank, highlighted that beyond stimulus injections, accelerated structural reforms are also on the horizon, which are anticipated to be a key focus of the upcoming high-profile meeting to outline next year's economic work.

"Given the downward pressures, the healthy balance sheet of the central government and the fact that the Chinese government has assets, they still have larger room to take bolder action to come out with bigger stimulus," Wang said.

Wang said that people are looking for income and consumption subsidies to households and measures to support employment.

"We think it's possible that more of these measures could be announced in 2025, maybe at the National People's Congress meeting in March."

Wang's words came as the markets await the Central Economic Work Conference — expected to be held in mid-December — to outline China's economic policy orientation for 2025, when the world's second-largest economy will wade through the potential downward pressures from the incoming Trump administration's trading policies.

US President-elect Donald Trump said this week that he will impose a 25 percent tariff on products from Mexico and Canada and an additional 10 percent tariff on goods from China, and had previously proposed a more aggressive scenario of a 60 percent tariff on Chinese goods.

China's reactions on the macro-economic adjustment front would be of great significance, according to experts. This is because the potential tariffs, coupled with domestic challenges of property market adjustments, could lead to a marked slowdown in the country's growth in 2025 — if stimulus policies are not sizable and timely enough — compared with this year's expected rate of 5 percent or slightly lower.

Wang said she believes that additional policy support in the months ahead, along with recent policy dynamics, "signals a very strong turning of overall government policy in trying to stabilize domestic demand and boost confidence". She also expects a strong fiscal impulse to drive a rebound in economic momentum in the fourth quarter and support growth into next year.

Further stimulus will remain necessary, Wang said, as it may take some time for the property market to fully stabilize, while additional US tariffs could kick off in the second half of 2025, dampening China's exports and leading to modest depreciation of the renminbi against the US dollar.

Wang's team has predicted that the Chinese government would expand fiscal support, with augmented fiscal deficit widening by 2 percent of GDP in 2025 — equivalent to more than 2 trillion yuan ($276 billion).

Wang said there is "definitely" room for China to even come out with a much bigger spending package than that, which will support not just short-term growth but make businesses and households more confident about the medium term, instead of worrying about growth stepping down each year.

"Some people would suggest that the debt level is already high and China should be a bit more careful, but I think there are also lessons including the eurozone debt crisis and Japan's (recession) to say that, at times, to make debt more sustainable, you actually need fiscal support to boost the economy. When the economy grows better, the debt problem becomes smaller."

On Monday, Premier Li Qiang called for opposing all forms of decoupling and pledged to increase countercyclical adjustments to promote a sustained economic upturn, which experts deemed as a preview of the policy tone to be made clear at the Central Economic Work Conference.

Shan Hui, Goldman Sachs' chief China economist, said that the conference is likely to see the announcement of incremental policy support in 2025.

Besides expanding trade-in deals for consumer goods, Shan said China may provide income subsidies for second-child families, increase rural-area pensions and enhance unemployment insurance safety nets. "To truly boost confidence, the total stimulus for consumption should exceed 1 trillion yuan."

Wang added that there are signs that Chinese policymakers are taking a coordinated approach to support the economy, which also includes faster steps in deepening reforms.

"I expect the Central Economic Work Conference to focus probably on not only the policy package for the short term, for 2025 and 2026, but also to emphasize speeding up some of the reform measures that were already outlined at the third plenary session of the 20th Communist Party of China Central Committee," Wang said.

Key reforms to be high on the agenda, she said, could consist of better protection and access for the private sector, State-owned enterprise reform to improve efficiency and governance, hukou (household registration) reform to improve migrant workers' entitlements, strengthened social protection networks, and fiscal reforms to address local fiscal revenue issues.

"All of these measures can help really boost domestic demand, but also confidence in the longer term," Wang said.