President Xi Jinping announced that China’s gross domestic product (GDP) is projected to grow around 5% in 2024, indicating the world’s second-largest economy is poised to meet its official target. This announcement, made at a new year event and published by Xinhua News Agency, comes after a year of economic uncertainty and signifies a stable and progressing economy.
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Navigating Economic Uncertainty: China’s 2024 Growth Trajectory
Xi highlighted the overall stability of the Chinese economy, emphasizing that risks in key areas were effectively managed, while employment and prices remained steady. While the final GDP figure will be released next month, this preliminary announcement provides reassurance to global markets. Initially, the 5% growth goal was perceived as ambitious, lacking a concrete roadmap. However, the outlook brightened considerably following a series of stimulus measures implemented by policymakers since late September. Current economic forecasts predict a 4.8% expansion for the year.
In his New Year’s Eve address, Xi reassured the nation that economic support would continue into 2025, emphasizing the need for proactive macroeconomic policies. He acknowledged existing challenges, including global uncertainties and the transition to new growth drivers, yet urged the nation to remain confident in its ability to overcome these obstacles. Xi stressed the commitment to fully implement the 14th Five-Year Plan and utilize more proactive and effective policies in 2025.
Looking Ahead: 2025 Growth Targets and Policy Responses
China is anticipated to set a 2025 growth target comparable to this year’s, signaling a willingness to deploy more robust stimulus measures. This proactive approach aims to mitigate the potential impact of anticipated US tariff increases under the incoming presidential administration. While the official GDP growth target will be unveiled in March during the annual legislative sessions, Reuters has reported a planned annual growth goal of approximately 5% for 2025. Bloomberg’s economist survey suggests a slightly more conservative estimate of 4.5% growth.
December’s key economic meetings saw officials pledge increased public borrowing, spending, and monetary easing to stimulate growth in 2025. This unusually direct call for action reflects a concerted effort to bolster confidence. Significantly, policymakers endorsed a shift to a “moderately loose” monetary policy stance, marking the first such change in 14 years. However, persistent challenges remain, including weak domestic demand and uncertainty surrounding exports, a crucial growth driver in the current year. Ongoing deflation and a slumping property market continue to weigh on the economy.
Graph showing China's economic growth.
Addressing Deflation and Monetary Policy Outlook
While initial 2025 stimulus measures might not reach the scale some analysts deem necessary to combat deflation, officials have indicated a willingness to intensify support if growth falters, mirroring this year’s strategy. Premier Li Qiang previously disclosed the 5.2% growth rate for 2023 in Davos, emphasizing China’s avoidance of massive stimulus.
The People’s Bank of China (PBOC) could further ease monetary policy by reducing the reserve requirement ratio (RRR) for banks, a move previously hinted at for late 2024. PBOC Governor Pan Gongsheng suggested a potential RRR cut of 25 to 50 basis points, contingent on liquidity conditions. December’s economic meeting also affirmed a commitment to an “appropriate time” RRR reduction. However, concerns about yuan stability and maintaining a favorable yield differential compared to dollar assets likely influenced the decision to delay the cut.
Chart depicting China's monetary policy.
Balancing Liquidity and Exchange Rate Stability
The PBOC’s cautious approach reflects a desire to preserve policy flexibility amid external uncertainties. Excessive liquidity injection could exacerbate yuan depreciation pressures. The Federal Reserve’s signaling of a slower pace of interest rate cuts might also have contributed to the PBOC’s decision. Analysts suggest a possible RRR cut window after the US presidential inauguration in January. Despite year-end seasonal demands, interbank market liquidity remains ample, with low borrowing costs for commercial banks. Subdued loan demand might lead to excess cash within the banking system.
Analysts anticipate a potential RRR cut in January, prior to the Lunar New Year holiday. Looking ahead, the PBOC is expected to provide long-term liquidity through RRR reductions and increased government bond purchases. These measures aim to support sustainable economic growth in the face of ongoing challenges.
