China’s policymakers will enhance countercyclical adjustments and take more steps to boost consumption, as the broader economy still faces pressing challenges from lackluster domestic demand and uncertainties from the external environment, economists said. Their comments came at a time when the market is eagerly awaiting proactive moves to revive the economy at the annual meetings of China’s top legislative and political advisory bodies, also called “the two sessions”. The National Committee of the Chinese People's Consultative Conference (CPPCC) will convene on March 4 and the National People's Congress (NPC) will start its annual session on March 5.
Wang Tao, Chief China Economist at UBS Investment Bank, said her team expects the two sessions to follow the policies of the Central Economic Work Conference (CEWC) held in December and again set a GDP growth target of “around 5%” to anchor expectations. Wang said policymakers are likely to prioritize “stabilizing growth” as the central task and emphasize boosting domestic demand through more supportive macro policies, with “reviving household consumption” being listed as a top task. Wang said her team expects the government to announce a higher budget deficit of around 4% of GDP and larger ultra-long-term special central government bond issuance of CNY2 trillion to support the trade-in program of consumer goods, corporate equipment upgrades and long-term projects. The team also expects another CNY500 billion to CNY1 trillion of special central government bonds for capital injections to banks, and more special local government bonds of CNY4.5 trillion or more to support local government financing vehicles’ debt swap and for home inventory destocking.
On the monetary front, she said policymakers will follow the “moderately loose” monetary policy tone set in the Central Economic Work Conference, with explicit calls to lower the funding costs of corporate finance and household credit, cutting the reserve requirement ratio (RRR) and policy rates, enhancing countercyclical adjustments, and pushing forward a “reasonable rebound” of inflation. “We expect the People’s Bank of China (PBOC) to cut policy rates by 30 to 40 basis points in 2025, likely in later months after the two sessions, and commercial banks to lower deposit rates further,” she said. “The PBOC may also use various facilities to maintain ample liquidity, including more outright repos, partly to cope with a much larger government bond issuance in 2025.” Wang said the government is likely to prioritize “boosting consumption” as the top policy task in the two sessions. “We expect the government to ramp up fiscal spending to support consumption and the household sector, including more than doubling the size of trade-in programs, creating a subsidy scheme for families with young children, and increasing the payout of residents’ basic pension and government contribution to basic social insurance.”
During a news conference at the beginning of 2025, the National Development and Reform Commission (NDRC) said the annual quota for the consumer goods trade-in program for this year, which will be significantly larger than in 2024, will be announced during the two sessions. China’s accelerated push for promoting trade-in deals for consumer goods is paying off, with significant growth in consumer spending on key items such as automobiles and home appliances, providing a solid base for steady economic recovery. Retail sales of passenger cars grew 5.5% year-on-year to 22.894 million units in 2024, while retail sales of home appliances and audiovisual equipment under the trade-in program reached CNY1.03 trillion, up 12.3% year-on-year. More than 60% of automobile trade-ins were new energy vehicles (NEVs), with over 6.6 million old vehicles replaced by new energy or energy-efficient cars. For home appliance trade-ins, sales of products with high energy efficiency accounted for over 90%, driving retail sales of highly energy efficient and smart home appliances to double-digit growth for four consecutive months. “High-tech products with high energy efficiency are favored, which also helps drive the high-end, intelligent and green transformation of related industries,” said Li Gang, Director General of the Department of Market Operation and Consumption Promotion of the Ministry of Commerce.
Looking forward, Lu Ting, Chief China Economist at Nomura, said the trade-in program will boost digital goods sales in the first quarter. Lu said policymakers pledged more specific measures to support consumption, including increasing basic pension payments and raising fiscal subsidies for basic medical insurance, the China Daily reports.
