No. 48 | China's Economic Outlook for 2025
On January 13, 2025, the 48th Tsinghua University Forum of China and the World Economy, organized by the Academic Center for Chinese Economic Practice and Thinking (ACCEPT) at Tsinghua University, was broadcasted online, with the event’s theme entitled “China's Economic Outlook for 2025.”
Guests included Professor Liu Shangxi, Member of the National Committee of the Chinese People's Political Consultative Conference (CPPCC), Researcher and former Director of the Chinese Academy of Fiscal Sciences; Di Dongsheng, Director of the School of Global and Area Studies at Renmin University of China; Qin Hong, Senior Researcher at the National Academy of Development and Strategy at Renmin University of China and former Director of the Political Research Center at the Ministry of Housing and Urban-Rural Development; Guan Qingyou, Director and Chief Economist of the Rushi Advanced Institute of Finance; David Daokui Li, Director of Tsinghua University's Academic Center for Chinese Economic Practice and Thinking (ACCEPT), Co-President of the Society for the Analysis of Government and Economics (SAGE) and Professor at Tsinghua University's School of Economics and Management; and Liu Peilin, Chief Researcher at Tsinghua University's Academic Center for Chinese Economic Practice and Thinking (ACCEPT) and former Deputy Director of the Development Research Center’s Development Strategy Department under the State Council. Li Ke’aobo, Deputy Executive Director of Tsinghua University's Academic Center for Chinese Economic Practice and Thinking (ACCEPT), moderated the event’s proceedings, during which ACCEPT released its macroeconomic report entitled “China’s Economic Outlook for 2025.”
In view of the overall direction for China's current economic performance, the report indicated that the potential for the country’s economic growth remains enormous. For instance, on the demand side, there is still significant room for increases in urbanization and the integration of the rural population, with residents' incomes expected to continue rising and some 700 million people having not yet fully reached a modernized standard of living. On the supply side, the national savings rate remains high, the capacity for scientific and technological innovation is immense, and the aggregate sum of human resources is growing. When it comes to current challenges and concerns, first of all, GDP growth has continuously declined over the past decade, with nominal GDP growth dropping to 4.06% year-over-year in the first three quarters of 2024, which, apart from the COVID-19 pandemic, is the lowest level since the period of“reform and opening-up”began. If the actual growth rate continues to remain lower than the potential growth rate for a relatively long period of time, this may lead to a decline in the economy’s potential growth rate, in this way proving detrimental to the goal of basically realizing modernization by 2035. Second, the slump in commodity prices has continued to drag on, the real estate sector has yet to stabilize, confidence in the stock market remains insufficient, a large number of industries are showing signs of being in a competitive race to the bottom, while some industries have meanwhile engaged in a zero-sum rush into overseas markets, and the business environment for enterprises is in dire need of improvement.
The source of these challenges can be traced to a mismatch in the infrastructure financing cycle as well as an economic management system that continues to concentrate on production and investment. In response to these concerns, the central government is now in the process of actively readjusting its policies. The 2023 Central Economic Work Conference proposed adopting high-quality development as the top priority in the new era, while the 2024 Central Economic Work Conference, on the basis of continuing in the spirit of last year's meeting, undertook to go a step further towards vigorously boosting consumption, which it held upas the number one key task. The meeting also proposed implementing a more proactive fiscal policy and a moderately loose monetary policy, indicating the implementation of a more forceful and effective policy “combination punch,” which is bound to provide robust support for the sustained recovery of the economy. Economic work departments and local governments at all levels must fully grasp the urgency of boosting economic growth and the grim situation presently facing the development of the economy, including earnestly striving to follow through on the spirit of the Central Economic Work Conference.
The report referred to the importance of accelerating and redoubling efforts towards the implementation of relevant policies in the following areas: removing all restrictions on real estate purchases; expanding the central government’s countrywide issuance of consumption vouchers; broadening the scope of support for consumer trade-in policies; focusing on providing additional support for low-income groups; significantly increasing the issuance of central government bonds to swap out local government debt; fully throwing more weight behind developing the central government bond market; and striving towards resolving the local debt problem within the next three years. At the same time, a certain proportion of indirect forms of tax collection should be rolled back, while realistically working towards improving the business environment and stabilizing expectations for foreign direct investment and private capital investment. Meanwhile,China should assume a leading role in pursuit of a new round of globalization by taking the initiative to actively improve the external environment.
David Daokui Li summarized the current economic situation from three angles. First, one can maintain an optimistic outlook in light of the current set of circumstances. The overall economic situation in 2025 is expected to be warmer than in 2024, while the central government’s policy orientation in 2025 will be spelled out in much greater detail, which is likely to mark the year in which the downward trend in the country’s growth rate will undergo a turnaround.
Second, solving the issues affecting the public finances of local governments has now been placed at the top of the agenda. Over the past 40 years, local governments have assumed a role at the center of gravity in pushing forward China’s economic expansion, driving the construction of infrastructure and attracting outside investment, fully demonstrating the effectiveness of the government. However, in recent years, local governments have lost much of their vitality and have been severely bogged down by debt problems, which has not only impacted GDP growth and real fiscal spending, but has also led to shortsighted moves to repay bank loans, such as back-checking historical corporate taxes. Such actions have in turn led to a deterioration in the business environment and a softening of economic activity. Li pointed out that the central government's financial situation is actually in a surplus, with the solution to this problem therefore residing in the central government moving to issue more sovereign debt, thereby bringing the country’s national government debt back into order. The purpose of issuing sovereign debt is to make available financing solutions while accessing international financial resources. In addition, such debt issuance is of the utmost importance for reconciling the ongoing issues associated with mismatches in the maturation periods for infrastructure financing, in this way extending the length of time required to complete the debt repayments for investments into infrastructure construction and easing the pressure placed on highly leveraged local governments.
Third, 2025 can be characterized as a year of turning points. Although there will certainly be ups and downs, the stock market is still expected to remain in positive territory for the year as a whole. On the issue of the real estate market, meanwhile, restrictions on purchases should be completely removed, or grid-based management should otherwise be adopted as the basis for any remaining purchase limits.
While the typical concept of stability when it comes to stabilization of the real estate market entails witnessing non-negative growth across all indicators, Qin Hong asserted that genuine stability will principally be achieved when there is a stabilization in investment going into new real estate development. Moreover, the stabilization of investment into real estate development in turn necessitates a stabilization in the transaction volume for purchases of real estate properties, which mainly hinges on overall price levels. At present, the real estate sector faces enormous challenges, and although there are some encouraging signs of stabilization for certain core areas among a set number of cities, this kind of positive momentum has yet to materialize on a country-wide scale.
There are two problems that must be resolved on the demand side of China’s real estate market: one is the supply and demand overextending caused by the latest rounds of de-stocking and second is the dilemma posed by people's weakening demand for housing in the future. She anticipates that in the future, there is a possibility of stabilizing sales of new properties at around 800 million square meters per year, but reaching this level will depend on investment and upgrading demand. The real estate market is expected to reach a structural equilibrium in 2025, but widespread improvement may be a difficult prospect for the time being.
The situation for upper-tier and lower-tier real estate companies is different, with the real estate industry now undergoing a period of structural readjustment. While state-owned enterprises operating at the national level are still developing and growing, the room leftover for leading private players to continue expanding in the real estate industry is expected to become smaller and smaller. It would be promising, however, if there were a number of real estate companies focused on penetrating the local markets in third- and fourth-tier cities, but further development in these areas has not attracted the attention of investors.
Liu Shangxi asserted that the proactive fiscal policy undertaken to date needs to be further “augmented” and “enhanced,”specifically in terms of raising the deficit ratio, expanding the scale of national debt, and boosting the multiplier effect of fiscal funds. However, due to the various institutional and structural obstacles impacting the effectiveness of fiscal outlays, such as the structural division between urban and rural areas, mismatches in the fiscal stance of local governments and imbalances in the industrial structure, the multiplier effect associated with government spending has been significantly diminished, which has continued to exert an impact on the transmission efficiency of fiscal policy. In response to the debt problem, the central government will need to bear a greater share of the responsibility. At present, the pressure placed on local governments from outstanding debt payments is exceedingly high, while the central government has ample resources and stronger credit that can be leveraged to find a fix to the debt crisis. The central government can support local government finances through a variety of means, including by issuing ultra-long-term treasury bonds, in addition to bolstering the integration of fiscal and monetary policies so as to effectively inject greater vitality into the economy.
Regarding the potential for China’s sovereign credit rating, Liu observed that so as long as the cyclical exchanges between debt and assets as well as debt and economic growth remain positive, the deficit ratio and overall debt level will not become a core issue. The conventional international practice of maintaining a “3% deficit ratio” and a “60% debt ratio” has been adhered to as a matter of doctrine within China. However, if policymakers moved to break free from such limitations, an increase in fiscal spending could be brought into play to further promote economic growth. He considers 2025 to be a key turning point for readjusting China's fiscal policy and economic structure, with the economy expected to achieve higher-quality development in the future through the bold implementation of more proactive fiscal policies, the optimization of resource allocation and the revitalization of existing assets.
Di Dongsheng emphasized that the relationship between government debt and economic activity should be regarded from the perspective of monetary history. In the current context of substituting the gold standard with freely convertible local currencies, the more that government bonds are denominated in the local currency the better, so as long as overall economic activity and progress in the scientific and technological domains are able to coincide in such a way to push forward continual economic development. Therefore, it is appropriate to open up and free oneself from previous constraints by moderately expanding the issuance of national debt in order to stimulate the economy.
On the issue of the United States, Di summed up the Trump administration's policies with his “seven highs and seven lows” framework, which covers tariffs, foreign aid, and energy policies, among other aspects. He pointed out that Trump's policies in his second term are directed towards dismantling global neoliberalism, and leveraging personal ties to Putin's administration, although such a configuration is unlikely to trigger a joint effort on the part of the United States and Russia to contain China. In addition, 2024 was a global elections super-cycle year, and despite populism and nationalism both being successively on the rise, on the whole, the composition of elected governments around the world has proven to be favorable to China. As for the stock market in the United States, its long-term performance is not directly correlated with short-term political events, but instead is mainly being influenced by the policies of the U.S. Federal Reserve. In looking to the future of China's economic growth and monetary policy, Di commented that welfare provisions, elderly care and childcare will be critical factors for maintaining China's economic growth in the years ahead, suggesting that the country work towards shoring up its confidence and actively responding to internal and external challenges.
Guan Qingyou noted that the market sentiment premium energized by policy adjustments in 2025 will continue to persist moving forward. He advised that investors, in general, should focus on high-dividend stocks and bonds, as they represent an effective strategy when dealing with an aging population and low-interest rate cycles. At the same time, the uptrend in bank stocks may be coming to an end, although holding onto high-dividend earning stocks for the long term remains a sound investment option.
Regarding the gold market, Guan remarked that the current bull market for the price of gold is correlated with growing unease towards the mainstream international monetary system and heightened international tensions. He predicted that changes in Sino-US relations could lead to the end of the gold bull market. Broadly speaking, he recommended that investors concentrate on longer-term trends and remain cautious in the present complex and volatile market environment.
In terms of international investment, Guan argued that the era of capital and financial bubbles has passed, whereas the period now is one defined by increasing strains on the resiliency of enterprises. Chinese entrepreneurs and investors must remain resolute under such circumstances, while patiently staying the course in their overseas and domestic investments. He alluded to the real estate market and China-U.S. relations as examples that illustrate the current uncertainties in the marketplace and the international situation, both of which underscore the kind of longer-term perspective that entrepreneurs need to embrace.
Successive iterations in the field of technology, especially with regards to the various application scenarios for artificial intelligence and new business models, are expected to bring about new opportunities for entrepreneurs. Guan referred to the emergence of second-hand stores in Japan and the digital transformation in China as examples that demonstrate the potential of technological progress to transform traditional industries. At the same time, he also emphasized the importance of the consumption segment as the fundamental basis of the economy, asserting that there is significant market space for those industries closely associated with improving people's livelihoods.
Liu Peilin pointed out that the policy guidelines put forward by the Central Economic Work Conference are “a more proactive fiscal policy and a moderately loose monetary policy.” Compared with the 13-year period from 2010 to 2023, which was defined by “a proactive fiscal policy and a prudent monetary policy,” this latest move represents a considerable shift in another direction. There have only been two similar policy shifts before, one in the wake of the Asian Financial Crisis and the other in response to the Global Financial Crisis.
Liu suggested that under the current approach to decision-making, the central authorities' determination has remained very firm, with the direction of planning laid down being very explicitly. However, in line with this decision-making process, the question of whether or not the implementation stage can be well coordinated constitutes a second-order problem. For instance, there is a disconnect between the central government’s issuance of government bonds and the fulfillment of such policy moves among those responsible for implementation. This is due to a lack of awareness as well as certain pitfalls associated with the allocation of resources among those entities responsible for executing such plans. The year 2024 further called attention to the ongoing issue of macroeconomic policy coherence as first raised in 2023, which is a very important matter that requires both theoretical guidance from scholars and practical consideration among various government actors.
As for the annual GDP growth rate planned for in 2025, Liu anticipates that the target will fall within a range of 4.5%-5%. When taking into account the exchange rate and international factors, there is greater likelihood that the GDP growth target will be set at 5%. However, he also made mention of the fact that the real growth rate is far more important than the nominal growth rate, with the question of whether or not the GDP deflator shifts from negative to positive being a particularly crucial factor for consideration.
