The 14th National People’s Congress (NPC), China’s national annual legislature meeting, opened its third session on the morning of March 5th. Attended by political elites and local representatives alike, this year’s NPC is under unusual scrutiny in anticipation of economic relief signals from the central government. Chinese Premier Li Qiang opened the meeting with his Work Report, delivering targets and rhetorics matching market expectations. But will it be enough to stop the bleeding on an ailing Chinese economy?
Meeting expectations
The headline figure is a 5% growth target for 2025, unchanged from 2024 despite facing stronger headwinds. Persistent turmoil in the real estate market is maintaining downward pressure on consumer sentiments while the export outlook darkens with the imposition of another 10% tariff on Chinese goods by the United States just hours ahead of the NPC’s opening. It is therefore unsurprising that the deficit ratio is raised to 4%, the highest level since 1994, affording the central government fiscal leeway to deliver on the ambitious growth figure.
Both the growth figures and the increase in deficit were long expected by analysts and hence priced in by the market, with the A-share essentially unmoved by the announcements as they were made. From a market perspective, the long-told narrative of a corresponding uptick or even a correctional event in the Chinese market with the announcements largely was not realized.
The signals
The market response to the Work Report certainly disappointed some, and perhaps it is an indication of market disappointments in the signals of future Chinese economic priorities. The signals of the NPC are more of business as usual than a pivot in approaches, despite a need for change to counter unprecedented pressure.
With a major spotlight in the report, industrial policy’s role in leading Chinese economic growth is reaffirmed. Li says Beijing will foster an environment of innovation, in which strategic emerging industries like EVs, biomaterial manufacturing and quantum technology will enjoy state support. This firm backing of industrial policy undoubtedly signals a continuation of “Made in China 2025” an initiative launched a decade ago, with roots as old as reform and opening up. The recent success of DeepSeek, an entity that grew out of state regulation rather than support, prompts a rethink on the effectiveness of industrial policy spending, casting doubt on its yield.
Another potential disappointment is the emphasis on further Infrastructure investment-led growth, a growth avenue of old with an increasingly slimmer yield. Economists consider the economic transformation from an investment-led structure to a consumption-led structure critical for continued Chinese growth. With Chinese consumption share in output lagging significantly behind its developed counterparts, such economic structural transformation is often deemed a must to escape the middle-income trap. The central government is aware of the importance of consumption, focusing on consumer spending stimulation in the report, but offered little detail beyond existing measures. Infrastructure investment spending, on the other hand, had much more concrete details on the categories and funding, especially highlighting the issuance of 1.3 trillion yuan of ultra-long term special treasury bonds to spend and invest in infrastructure.
What’s missing
Addressing the real estate turmoil, Li referenced recent measures in cutting mortgage rates and allowing local governments to buy up housing surplus with special bond proceeds. Yet little clarity is provided to address the immediate liquidity needs of failing developers. The governmental takeover of the hybrid-structured Vanke was not enough to absolve the doubt on the government’s willingness to bail out failing firms, a topic that’s reportedly still being discussed among top circles due to moral hazard concerns. Although the existing measures had some effects in stopping active bleeding, with the descent of new home prices stopped in December 2024, confidence in the real estate market and the overall economy will not recover without the liquidity issues resolved.
The unremarkable content of Li’s address did not live up to the remarkable attention it attracted. The Work Report delivered on expectations, lauded past accomplishments, and provided limited future guidance. This year’s NPC is not shaping up to be the real estate rescuing, economic structure reversing, stimulus-handing free for all to revitalize Chinese growth. However, amidst rapidly changing external challenges, this approach of leaving doors open for further adjustments in 2025 may just be what China needs.
Image credits: Ng Han Guan of AP
Ian Wan
Ian, a Beijing native, will be joining J.P. Morgan’s Global Corporate Banking division later this year. He brings experience from Tencent (腾讯), Mackenzie Investments and academic institutions across China and Canada, holding a deep interest in the Chinese economy, markets, and society. Ian enjoys tutoring and teaching undergraduates at the University of Toronto’s Department of Economics. Ian loves auctions and barbecues.
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