The growth target set by Chinese authorities for this year, of "around 5%", is ambitious, but the increase in the fiscal deficit will be insufficient to prevent the economy from slowing, analysts warned.
"China's political leadership has maintained an ambitious target for real GDP [gross domestic product] growth, but is more cautious in its forecasts for nominal growth and inflation. And while it has announced an increase in fiscal support, the degree of easing is more moderate than it appears," Julian Evans-Pritchard, an analyst at consultancy Capital Economics, wrote in a report.
The expert said he was skeptical that the measures announced would prevent a slowdown in growth in 2025, marked by "headwinds on the international scene and the absence of a more pronounced shift in public spending to support consumption."
After having earmarked a record percentage of spending for investment in 2024, Beijing now appears to be turning more towards consumption, "although nothing extraordinary", with the equivalent of 41.3 billion dollars (38.5 billion euros) in bonds to finance the government's "renovation plan" for household appliances or electronics, the analyst noted.
Hong Hao of Chinese asset manager Grow Investment Group noted that this year's official report is the most mention of the word 'consumption' in a decade, but Evans-Pritchard noted that policymakers are "not counting on a significant boost" in the form of recession (the artificial stimulus of the economy by the state, usually to overcome a recession).
Chinese Premier Li Qiang said on Monday that the economic growth target for the current fiscal year is set at "around 5 percent" for the third consecutive year, and that the fiscal deficit will be increased by one percentage point to 4 percent as part of the government's efforts to revive the recovery.
Despite the "biggest increase in decades" in the deficit-to-GDP ratio, Evans-Pritchard estimated that, taking other factors into account, the real increase in spending will be around 1.5%, lower than in previous easing cycles, such as 2015 (2%) and 2020 (3.6%).
Charu Chanana of exchange-trading platform Saxo Markets, quoted by Bloomberg, said the targets revealed by Li were "in line with expectations" and showed that authorities were still "saving ammunition for later", an analysis that was echoed by Lee Homin of Swiss bank Lombard Odier, who believes Beijing could consider adjusting the deficit target mid-year once the impact of Washington's tariffs on Chinese goods becomes clear.
The latest projections from the International Monetary Fund (IMF) and the World Bank (WB) point to Chinese GDP growth of around 4.5%, after growing 5%, in 2024, driven by an extra effort by the authorities at the end of the year.
However, Capital Economics doubts that China grew by 5% last year, as official figures indicate, and argues that the rate was in fact around 4.4%.
Evans-Pritchard noted that the inflation target, which was raised to 2% from 3% last year, is the lowest since 2003, and noted that "the People's Bank of China [the central bank] is unlikely to do everything necessary to bring" the indicator back to that level: "A lower target suggests some official acceptance of the current deflationary environment."
The expert also referred to the official promise to keep the exchange rate of the Chinese currency, the yuan, "generally stable at an adaptive and balanced level": "It is repetitive language and does not rule out a further depreciation at some point this year, especially if the tariffs imposed by the US continue to rise."
Weak domestic and international demand, associated with risks of deflation, insufficient stimulus, a deep real estate crisis and a lack of confidence among consumers and the private sector are some of the causes pointed out by analysts to explain what is happening in the world's second largest economy.
Added to this is the intensification of the trade war with the US after Donald Trump's return to the White House.
