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Taking stock: How China’s end-of-year policies will shape 2025
December 2024
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December is always high season for policy-making in Beijing. The party’s top brass assemble for the final politburo meeting of the year, which sets the policy tone for the all-important Central Economic Work Conference (CEWC), conventionally held a few days later. In the immediate aftermath of the end-of-2024 meetings, we look at the key takeaways and implications for business next year.
Both meetings are a chance for the country’s top leadership to reflect on the previous year’s economic work and set out a blueprint for the year ahead. The CEWC is also when key targets are decided, including for GDP growth and the budget deficit – though these figures are not released to the public until several months later, after the Two Sessions meeting in March. Crucially, 2025 will mark the final year of the 14th Five-Year Plan, and the leadership will want to hit the ground running in 2026, having successfully met most of their targets for the previous chapter.
The stakes are high. External headwinds are about to get stronger, as U.S. President-elect Donald Trump returns to the White House next month, heading up a new cabinet peppered with long-time China hawks and wielding a mandate to issue wide-ranging tariffs. This comes on top of existing challenges that China’s leadership has talked about this month, namely the problems of low consumer demand, risks in the real estate sector, and “pressures” on employment and income growth.
In this context, the two recent meetings offered a timely temperature check on the economy – an opportunity to take stock of current issues and chart a trajectory for growth in 2025. Here are the headline takeaways.
Key outcomes
Consumption and domestic demand: The CEWC unveiled nine policy priorities for the year ahead, with consumption, investment efficiency and domestic demand at the top of the list. This marks something of a return to form. Creating a vibrant consumer economy was a key priority in the pre-pandemic years, but progress has since fallen short as consumer confidence remained low and other drivers of growth were prioritised. Surprisingly, consumption was hardly mentioned at all during the long-awaited Third Plenum in July. Now it is firmly back on the agenda and will depend on how well the government manages to implement a range of underlying goals, namely elevating people’s incomes, reducing living costs, and raising basic pensions for retirees. This year’s CEWC readout also talks about exploring new consumer spending scenarios and explicitly mentions the “silver economy” – a clear nod to the importance of cultivating an increasingly relevant demographic of consumers.
New-quality productive forces: Taking second place on the list, “new-quality productive forces” have been a consistent mantra throughout the past year, featuring prominently in virtually every important party and government pronouncement. The Third Plenum emphasised innovation as a national strategic goal that both SOEs and private enterprises should work toward. The CEWC reiterated some of these points, highlighting the importance of emerging industries in improving the financial sector, as well as transforming traditional industries. Notably, the CEWC also emphasised the need to prevent a race to the bottom in domestic competition, signalling the government’s concerns about overcapacity amid weakening external demand.
Fiscal and monetary policy: Both the politburo and CEWC meetings were notable for their general tone on macro policy, suggesting greater confidence in adopting bolder economic prescriptions over the coming months. The leadership is leaving the door open for a more proactive fiscal policy, increasing the budget deficit and issuing more ultra-long-term treasury bonds. Both meetings also spoke of implementing an appropriately “loose” monetary policy, envisaging cuts to reserve requirement ratios and interest rates. These revelations come on the back of recent comments from finance minister Lan Fo’an in October, who mentioned that China still had “ample room” to raise more debt and increase the deficit. All these indicators have raised expectations for a more substantial economic stimulus in the new year.
Implications for business
Revisiting consumer spending: A redoubled focus on consumption is a positive sign. The government clearly sees the rise of “high-quality consumption” as an indispensable parallel to China’s ongoing modernisation and actively welcomes foreign enterprises to participate in creating new, better avenues for consumer spending. There are many potential ways to leverage this trend for government engagement. International firms should be more creative and proactive in proposing innovative consumer spending scenarios when seeking government cooperation.
“New quality productive forces” as key drivers of growth: Cutting-edge innovation is the spirit of the times, and the central government has been doubling down on science and technology investment this year. But for firms in China, this does not have to mean reinventing the wheel. Introducing new technologies to upgrade traditional industries could be an easier route to explore, especially if these initiatives align with other long-term government priorities, such as “rural revitalisation” or healthcare access. Using innovative technologies to improve sustainability in established fields is also a crucial aspect to China’s ongoing modernisation drive and could bring opportunities for proactive government cooperation, especially in underdeveloped regions of the country.
Cultivating foreign investment and expertise: The Chinese government has introduced several measures to improve the business and investment environment for foreign firms over the last year, including removing barriers to access, introducing tax incentives, and supporting foreign-funded R&D centres. Even in the face of increased tariffs and restrictions from the U.S. and EU, the CEWC reiterated China’s commitment to “opening up” and integration, with foreign investment the fourth item on its list of priorities. Multinationals operating in China can have some degree of optimism that new, concrete, positive measures will be introduced in the new year, following the Two Sessions.
The road ahead
Inevitably, there will have been disappointment in some quarters, especially among those who may have expected a surprise end-of-the-year stimulus. The renewed emphasis on consumer spending is undoubtedly a positive direction, though charting a path toward a robust, sustainable consumer economy will be no small feat. Looking ahead, the Two Sessions will provide more specifics for economic priorities in 2025, which will likely come in response to dynamics beyond Beijing’s reach. With Donald Trump returning to the Oval Office in January, China may well have to recalibrate its economic strategy in the face of new tariffs and a possible deterioration of trade relations. Facing these new challenges, the Chinese leadership seems to be hedging against outside risks by prioritising growth over fiscal discipline – at least for now.
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