Concrete policy directions emerge as China’s 2025 ‘Two Sessions’ conclude

Concrete policy directions emerge as China’s 2025 ‘Two Sessions’ conclude

March 2025

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After weeks of headlines about policy upheavals in Washington DC, this month Beijing’s top policymakers convened for the most important event in China’s annual political cycle. Every March, thousands of delegates from across the country gather in the capital for the ‘Two Sessions’, a week-long marathon in which China’s national legislature and top political advisory body meet in parallel.

Most importantly, this is when China’s premier delivers the Government Work Report, reflecting on the previous year’s achievements and setting out a range of policy priorities and targets for the year ahead. Just hours before US President Donald Trump gave his joint congressional address on the other side of the world on 4 March, Premier Li Qiang took the stage in Beijing to unveil the key goals that would shape China’s macroeconomy over the coming months, including the much-anticipated GDP growth target.

The headline figures for this year included:

GDP growth target is set at “around 5 percent”. This is identical to last year’s goal and broadly in line with market expectations.

Deficit-to-GDP ratio is raised to 4 percent. This is a record high, indicating the government’s readiness to take a much more proactive fiscal approach.

Consumer Price Index inflation target is lowered to “around 2 percent”. This reflects the government’s recognition of China’s pervasive deflationary pressures.

There is no doubt the Chinese economy is facing significant headwinds this year, both domestically and internationally. The real estate market continues to struggle with systemic problems, consumer confidence lacks vitality, and revived trade tensions with the US loom large over China’s all-important export industries. In this context, a 5 percent growth target is certainly ambitious, but the government is keen to project confidence.

Several takeaways stand out for observers of the meetings:

Bolder fiscal policies may well be on the horizon, as already hinted at during last year’s Central Economic Work Conference. By raising the deficit ratio substantially, the government acknowledges it will have to spend more money just to keep growth in line with last year.

Bolder policies will go hand in hand with ‘off-the-book’ bond issuance – such as ‘ultra-long-term’ special treasury bonds – which will be increased across the board.

Looser monetary policies can also be expected, with significant cuts to required reserve ratios and interest rates.

From the leadership’s perspective, the keys to unlocking China’s economic potential over the near-term boil down to two words: ‘consumption’ and ‘innovation’.

Boosting consumer spending is top of the agenda again, and this year’s Government Work Report unveils several initiatives designed to re-animate, upgrade, and diversify the consumer economy. Pension reforms and family-friendly subsidies were some of the measures identified, intended to put money back into people’s pockets and stimulate domestic demand.

These goals may sound like broad brush strokes, but the leadership’s commitment to them is evident from the speed with which policy specifics have subsequently emerged. On 16 March, just days after the Two Sessions concluded, China’s two most important decision-making bodies – the Central Committee of the CPC, and the State Council – jointly released a comprehensive blueprint for a reinvigorated consumer economy. This 30-point Action Plan comes with concrete proposals on everything from raising the minimum wage and improving childcare subsidies, to stabilising the stock market and developing the tourism sector.

While revitalising the consumer economy is the first priority for now, scientific and technological innovation remains an overarching theme, fundamental to China’s long-term goal of sustainable industrial modernisation. Echoing the spirit of last year’s ‘Third Plenum’, the government has continued to double down on so-called ‘new quality productive forces’, the frontier technologies transforming China’s modern industrial economy. This year’s Government Work Report namechecks a broad spectrum of fields – from biomanufacturing to 6G and embodied AI – that will be prioritised for research and investment.

The tone on innovation is set from the very top. Perhaps more revealing than the Government Work Report itself has been President Xi Jinping’s personal schedule during the Two Sessions. On 5 March, he met with delegates from Jiangsu – one of China’s foremost regional powerhouses – calling on the province to spearhead industrial innovation and advance economic reform and opening. The following day, Xi chaired a meeting of CPPCC delegates and education leaders, highlighting the centrality of education to China’s national sci-tech innovation drive, while also addressing specific opportunities and challenges that digitisation and AI present for the education sector.

Reinvigorating the consumer economy is an immediate priority, but scientific/tech innovation ties together China’s long-term economic strategy

In parallel with these areas, we are seeing an increasing pivot toward market opening and more receptiveness to private enterprise, a stark contrast with some of the high-profile crackdowns on business overreach in recent years. The mood music has clearly been evolving for several months, at least since the Third Plenum. The most obvious instance of this shift in tone was last month’s private enterprise symposium – the first such event chaired by President Xi in over six years – which publicly emphasised the private sector’s essential role in China’s evolving economy and, perhaps most surprisingly, ostensibly welcomed Alibaba founder Jack Ma  back in from the cold. President Xi’s meeting with the Jiangsu delegation also reiterated several market reform priorities from the Government Work Report, namely reducing administrative barriers, promoting regional market integration, and curbing protectionism at the local level.

The promise of more market-oriented reforms should be an encouraging signal for foreign investors and multinational enterprises in China. Specifically, the government is pledging to ‘open-up’ more sectors of the economy to foreign investment, including digital services, culture, telecoms, medical services, and education. This comes on the back of last year’s pledge to remove all market access restrictions on foreign investment in the manufacturing sector, which has since been implemented.

These positive trends gradually appear to be translating into investor sentiment. Despite persistent structural challenges, the Chinese economy is a wellspring of technological innovation, while the domestic consumer market offers huge potential for growth. Market experts are expecting additional stimulus measures in the near term, as the economy shows signs of gradual improvement and adapts to external pressures, particularly from trade frictions with the US.

Overall, China’s leadership is acutely aware that more effort is needed to encourage consumer spending, promote innovation, and restore confidence in the business environment. This proactive approach will, in turn, open new opportunities for global enterprises in China.

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