China’s Outlook: Stimulus, Trade War, and Growth Prospects as US Recession Risks Rise

Beijing Sets 2025 Targets as US-China Trade Tensions Intensify

On March 4, Beijing released its 2025 Work Report, setting its 2025 economic targets and reiterating monetary and fiscal policy support. The government made several pledges to counter deflationary pressures and mitigate the potential effects of a full-blown US-China trade war. Key measures included:

• Monetary policy easing through interest rate and required reserve ratio cuts.
• Targeted support for the property sector and stock markets using monetary tools.
• Special treasury bond issuances to bolster state-owned lenders.
• Initiatives aimed at boosting domestic consumption.

The announcement followed President Trump’s March 3 Executive Order, which raised tariffs on Chinese goods to 20%, effective March 4.

Despite escalating trade tensions, Beijing set a 2025 GDP growth target of around 5%. Additionally, Beijing set a 2025 inflation target of 2%, a sharp increase from 0.2% in 2024. The targets underscore the government’s commitment to deliver significant fiscal and monetary policy support to drive domestic demand.

The report was released ahead of the third session of the 14th National People’s Congress, scheduled from March 5 to March 6.

Beijing Prioritizes Consumer Spending and Domestic Demand

Amid the tariff dispute, China has already launched initiatives to spur domestic consumption, including:

• An 8,000 Yuan insurance subsidy for Tesla (TSLA) Model 3 purchases before March 17.
• A 500 billion Yuan NDRC pledge for equipment upgrades and trade-in programs.
• Plans to provide free preschool education and childcare subsidies.

Beijing’s emphasis on consumer spending aligns with China’s transition from an industrial-led to a consumption-driven economy. This shift reduces China’s reliance on external demand, enabling Beijing to adjust policy to meet economic targets.

Ahead of this week’s announcements, PBoC Governor Pan Gongsheng vowed continued policy support on March 2, stating:

“As long as China’s inflationary pressures remain manageable, efforts will be made to ensure that the financing costs for private enterprises are maintained at a relatively low level for an extended period of time.”

Is Beijing Concerned About a Full-Blown US-China Trade War?

China’s economic pivot toward domestic consumption was outlined in the 14th Five-Year Plan (2021 – 2025). The upcoming 15th Five-Year Plan is expected to continue this focus while also expanding into AI.

Notably, economists expect US tariffs to have a limited impact on China’s global trade terms and economy. Beijing’s measured response to US tariffs suggested a willingness to go head-to-head with the US in a protracted trade battle. China’s foreign minister said that if the US insists on waging a trade or tariff war, China will see it through to the end.

Expert Views on Tariffs, Beijing’s Economic Targets and Policy Pledges

Natixis Asia Pacific Chief Economist Alicia Garcia Herrero questioned the feasibility of China’s 2025 growth target:

“The target is very ambitious. It is ‘non-reachable’ without a bigger stimulus, especially in light of the increased tariffs.”

Meanwhile, former People’s Bank of China advisor Li Daokui dismissed tariff concerns, stating:

“I strongly believe this time around, tariff is no longer a big issue. If you give me the order of three top issues in China or challenges in China, I don’t even put top three the tariff from President Trump. […] The way to deal with tariffs is the same as dealing with other issues in Chinese economy. That is to boost domestic consumption. And on this issue, there’s already tremendous tremendous discussions, and also a lot of policies will be implemented down the road.”

Market Reaction: Hang Seng Index and Mainland Markets Advance

Despite trade tensions, investors appear optimistic about Beijing’s policy measures. The Hang Seng Index has risen 5% this week, while the Mainland’s CSI 300 and Shanghai Composite Index are up 1.40% and 1.46%, respectively.

In contrast, the Nasdaq Composite Index is down 1.56%, with the Dow and the S&P 500 falling 1.90% and 1.88%, respectively.

While Beijing sets an ambitious 2025 growth target, US recession fears are mounting, potentially limiting Trump’s options to target trade terms. 2025 US recession odds have surged to 41%, the highest since November, amid escalating trade tensions.

What’s Next? Stimulus or Trade Talks

Tit-for-tat tariffs could affect risk sentiment. However, Beijing’s policy support may ease tariff concerns, bolstering demand for Hong Kong and Mainland China-listed stocks.

Brian Tyncangco, editor and analyst at Stansberry Research, commented:

“China is collapsing upwards. Manufacturing PMI expanding, Services PMI expanding, money supply at an all-time high, property market stabilizing, Hang Seng Index at a three-year high.”

Stay ahead of market trends—explore our in-depth analysis of China’s economy and global markets here.