China’s economy has recently shown promising growth, achieving a 5.4% increase in GDP last quarter, thus surpassing expectations. However, the ongoing trade war initiated by U.S. President Donald Trump casts a shadow over this progress. With the imposition of a significant 145% tariff on most Chinese imports, both exporters and consumers in China are facing mounting challenges. This situation pressures the Chinese government, which is now equating economic stability with national security, prompting discussions of a substantial stimulus package.
So far, the measures taken by President Xi Jinping have lacked effectiveness, particularly in the real estate sector, which witnessed an almost 10% decline in investment compared to the previous year. The tariffs have further complicated the economic landscape, prompting UBS economists to downgrade their GDP growth forecast for China to 3.4% by 2025, assuming the tariffs remain in effect. The challenge for Xi’s administration is significant, as they seek to maintain growth at current levels while preparing the next five-year plan through 2030. Premier Li Qiang’s recent actions reveal his priorities: enhancing local consumption and revitalizing the real estate market.
His visits to projects aimed at converting unsold properties into public housing signal a push to stimulate demand. As planners prepare for record-high fiscal spending in 2025, which could widen the deficit to 4% of the $18 trillion economy, the funding will include the issuance of special sovereign debt. Economic security has become a central theme, emphasized by Xi, as he advocates for expanding domestic demand. The upcoming Politburo meeting will be crucial in understanding whether Beijing is ready to take decisive action in response to external pressures and the associated economic challenges.