China: Domestic demand prioritised to offset tariffs – Standard Chartered

NPC set targets for growth at 5%, inflation 2%, official budget deficit 4% of GDP, largely as we expected. We expect the announced fiscal stimulus to partially offset the impact of US tariffs announced so far. We maintain our 2025 growth forecast at 4.5%; downside risk to be mitigated by additional stimulus, Standard Chartered's economists note.

Stimulus to be frontloaded, may be boosted if necessary

"The National People's Congress (NPC) meetings started today; Primer Li Qiang outlined China's economic and policy priorities for 2025 in the Government Work Report. Most of the announced numerical targets (Figure 1) were in line with our expectations. A supportive policy tone was maintained, consistent with the Central Economic Work Conference last December."

"Fiscal policy remains the focus of the market. While the official fiscal deficit was widened to 4% of GDP for 2025, the government bond issuance quota (CNY 11.86tn) was slightly lower than we expected. Pending further details on the budget report (especially other deficit-financing items), our forecast broad deficit remains 8.4% of GDP, c.1.3ppt higher than the 2024 implemented broad deficit. We think the current stimulus plan is insufficient to offset the latest US tariff hikes, and expect additional stimulus to be rolled out if H1 growth momentum indicates significant downside risks."

"The government emphasised its support for household consumption and income. In addition, it pledged to stabilise the property and stock markets, while keeping tech and green development as priorities. On the external front, the government plans to continue its ‘one way’ opening, despite rising protectionism globally."