What are the Chinese Government’s economic priorities for 2025?
An analysis of the key tasks for 2025 set out by Chinese economic policymakers at the recent Central Economic Work Conference (CEWC)
The Investigator | No. 04/2024
The annual Central Economic Work Conference (CEWC) is held by the Chinese Communist Party (CCP) every December to outline the government’s main economic objectives and policy plans for 2025. As is custom, the outcomes of the conference will not be announced until next March, at the National People’s Conference (NPC) meeting. George Magnus, one of Britain’s leading economists on the People’s Republic of China (PRC), gives a contextualised analysis of this year’s CEWC meeting.
Beijing’s angst over the economy persists
The PRC’s economic policy makers remain anxious that successive rounds of increasingly assertive measures to stabilise the economy have not yet gained traction. The annual end-year Central Economic Work Conference (CEWC), a formal event at which the government outlines priorities and key issues for the coming year, convened on 11th-12th December and set out nine key tasks for 2025. In a shift in emphasis, the government made boosting consumption and improving the efficiency of investment to expand domestic demand the number one task. This marks a shift in position from the main goal of this year which was to leverage technology to develop so-called ‘new productive forces’ to build a modern industrial system.
There were other points to note in the official read-out of the CEWC, confirming that official concern about the economy has not only not abated but has, in some respects, deepened. It characterised the overall monetary policy stance as ‘moderately loose’, replacing ‘prudent’ which had been the preferred term since 2011, and it presented its fiscal policy again as ‘more proactive’ as it did in 2020. These linguistic changes are monitored closely to detect signs of shifting policies, and we can presume that what will follow will include further reductions in already low interest rates and banks’ reserve requirements, the provision of ample liquidity and a tolerance for higher credit growth if this can even happen, and higher fiscal deficits and borrowing by both Beijing and local governments.
The issue though is whether these initiatives will work.
Monetary policy
While there is much focus in Beijing on monetary policy, the relative impotence of monetary policy, which was much in evidence in the free and open countries in the aftermath of the financial crisis, is also evident in the PRC. There is little to be gained by cutting the cost of credit and making money available if people and firms simply are credit-averse, that is, credit demand is negligible. The latest credit data from November showed again that aggregate credit growth has stabilised around a 21-year trough, despite considerable easing of monetary policies.
There is indeed a case that Beijing should throw caution to the wind and boost the money supply much more aggressively in an attempt to fight deflationary pressures which are undermining assets, spending, earnings and productivity. The GDP deflator, the broadest measure of inflation, has been falling in the PRC for the last six consecutive quarters. Consumer prices have fallen 1% between August and November. Interest rates can not fall fast or far enough to compensate. Major monetary expansion, though, could lead to a sharp fall in the value of the yuan which would have adverse repercussions domestically, retarding already weak consumption, and angering the PRC’s trade partners in both developed and emerging countries.
Fiscal policy and consumption
Fiscal policies could be more instrumental in addressing the PRC’s issues and the government will doubtless act more in this area in 2025. It will be interesting to see if some of the additional fiscal efforts will be allocated to fund programmes to finance stronger consumption. The CEWC said that there would be a ‘vigorous’ boost to household consumption, and indeed this would be welcome if it were to happen. Part of the PRC’s problem is that the relentless focus on investment, supply and production – at the expense of households – is contributing to severe domestic and external imbalances and to deflation.
The CEWC only went so far as to refer to a broadening of the current consumer goods new-for-old programme, which effectively swaps future for current consumption, and the intention to enhance pensions and medical insurance subsidies.
Pensions and medical benefits could, over time, and if effectively managed, help to boost consumption directly and by allowing people to save less. For now, CEWC is probably confirming existing plans to expand the relatively recent private pension system, which has about 50 million members already but suffers from low levels of contributions, illiquidity and weak incentives. Expanding medical benefits to help curb high out-of-pocket expenses would help too.
The caveats are that the government does not approve of welfare systems, the like of which most free and open countries have, and such improvements as are introduced are likely to be limited. Even regarding immediate consumption, the official line seems to be more supply focused than demand oriented. The CEWC speaks of providing more opportunities to spend, for example, on culture, tourism, leisure, and age-related goods. Yet, consumption in the PRC is constrained, not because there’s a shortage of things to buy, but because of inadequate or weak income formation, shortcomings in better paying and more secure work, and other demand deficiencies. If the government doesn’t address these issues, its 2025 measures may achieve little.
Other tasks, including social stability?
Other tasks for 2025 comprise ritual intentions to undertake ‘reforms’ including state firms, regulation and supervision, and capital markets, to boost ‘opening up’ in commerce and promote BRI co-operation, resolve risks notably in property and banks, to promote urbanisation and rural revitalisation, to push regional development, and to co-ordinate carbon and pollution reduction. None of these are new, but the ninth task is.
It is to improve people’s livelihoods, enhancing their sense of ‘gain, happiness and security’ by focusing for example on employment support and workers’ rights, expansion of education, medical and healthcare benefits, and raising birth rates. One could be forgiven for thinking that this is a more sophisticated way of addressing what officials might well fear as social stress and instability. If so, this would be a notable addition to the government’s list of worries, and merits close scrutiny.
What is the government thinking, and doing or not doing?
In a way, for the government to lay even more emphasis on policy easing and to underscore the weakness of consumption is a little incongruous. It has, after all, been acting to stabilise the real estate market, address potential sources of financial instability and boost demand ever since abandoning zero Covid-19 policies at the end of 2022, and the top CEWC priority for 2025 is the same as it was in 2023. Self-evidently, the medicine has not been especially effective.
Moreover, the momentum in the economy right now, as the new year draws near, is more robust than it was a year ago. After a weak second quarter, in which the economy expanded by less than 3% at an annualised rate, momentum cited up to 3.6% in the third quarter, and the monthly results in the September-November period looked more upbeat.
Further in September and October, the government announced a panoply of initiatives that, among other things, fuelled a vigorous rebound in Chinese equity markets. In a matter of weeks, the government approved reductions in interest rates, mortgage rates, restrictions on home purchases, and banks’ reserve requirements, increased subsidies to local governments and state enterprises to buy up empty properties, incentivised local governments to spend over 2 trillion yuan (£217 billion) in borrowed but unspent funds, and agreed to a 12 trillion yuan (£1.3 trillion) programme over the next three years to refinance local government debt mainly, but also to fund urban projects and recapitalise the largest state banks.
It is quite likely that the government will realise its 2024 target for growth of 5%, or at least get close. That should give the economy a politically acceptable cyclical platform to start the new year, but the authorities probably sense, correctly, that rear view mirror momentum is quite likely to be undermined by still strong economic headwinds.
The government thinks these are many cyclical, or short-term, barriers to growth, which it can address. This is true to an extent, and the government can probably ‘fix’ the economy to the extent that cyclical factors are at work. More details will be made public at the annual National People’s Congress in March 2025. However, the problem is that the main barriers to growth are systemic and related to the PRC’s faltering economic development model, to which the CCP’s industrial policy, export and supply-focused agenda is ill-suited.
We can assume there will be no retreat from Xi Jinping’s focus on these matters. They dovetail precisely with how the party views national security and its own ambition to dominate the so-called fourth industrial revolution, not least as a way of marginalising the role of the United States (US) in the global system.
The question is really whether the government is prepared to acknowledge not only that cyclical issues are a demand-side problem, but also that structural or systemic drags on the PRC’s economy require a reboot of Beijing’s economic development model with all the requisite shifts in the distribution of economic and political power that go along with it.
George Magnus is a member of the Advisory Board of the China Observatory at the Council on Geostrategy.
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