China’s 2025 economic plan

It’s already March, and yet this is my first weekly wrap of the year.

• Being honest, I’ve tried to dip my toe back in several times – but with things moving so quickly, it’s often felt too daunting to write a step-back piece on any given week of China-related developments.
• But key moves on the domestic macro-policy and trade war fronts this week are too important not to dive in – so here we go.

The headline developments in China this week are likely to stay relevant for some time – at least the next couple of years – as they help answer two key questions:

• How do senior Chinese leaders plan to shepherd the domestic economy in the years ahead?
• And what is the state of China’s evolving approach to the second Trump administration when it comes to tariffs and broader economic statecraft?

We got pretty clear insights into the answers to both of those questions this week, thanks to the annual meetings of China’s legislature and advisory body (aka the Two Sessions) that kicked off on March 4, and the retaliatory trade measures China announced – also on March 4 – in response to Trump’s second 10% tariff increase on Chinese imports into the US.

Today, I’ll focus on the domestic macro-policy moves, because while the trade and tech back-and-forth between the US and China grabs headlines, the management of the domestic economy is far more important for China’s long-term development trajectory.

• I’m also confident there will be plenty of opportunities to dissect China’s approach to the trade and tech war in the coming days, weeks, and years.
• But if you just can’t wait, we’ve included some key developments and analysis on this in the “what you missed” section below.

A quick aside: Before I dive into the key announcements from the Two Sessions, it’s worth keeping in mind something my colleagues and I have discussed a lot over the past few weeks.

• US-China relations – while exceedingly important – don’t top the issues list of either Donald Trump or Xi Jinping.
• The Trump administration is heavily focused on a spate of domestic policy issues, including reshaping the federal government, with foreign policy playing a solid second fiddle.
• And to the extent that foreign policy issues do take up space, China ranks a distant third to the Ukraine-Russia and Israel-Gaza crises.
• Even when it comes to tariffs, China is only a part of the equation for Trump.
• Like Trump, Xi has a laundry list of domestic economic and social challenges that take up most of his time.
• And also like Trump, he is more focused on managing China’s relationship with Russia and the Global South than on righting the ship with the US – in part because he thinks that ship is already wrecked.

With that out of the way, on to China’s big macro announcements from Wednesday. Here are the headlines (which I discussed extensively with Trivium’s Head of Markets Research Dinny McMahon in our latest podcast):

• The 2025 real GDP growth target was set at “around 5%” – right in line with expectations and the same as 2024.
• The 2025 CPI target was set at 2%, down from 3% in 2024 ­– an acknowledgment that price growth remains heavily subdued in China, where officials have undershot their inflation target for several years running.
• The 2025 budget deficit target was set at 4% of GDP, well up from 3% in 2024 – and the highest in three decades.

There’s a lot more nuance to these targets, which we dive into in the podcast and our daily notes, but the key implications are pretty straightforward:

• The growth target matters less than it ever has. In the past, the central government used it to signal to local officials how hard they should push to boost their economies.
• But the growth target has held steady for several years now, so it tells us much less about whether headline economic performance is a top priority from year to year.
• When it comes to the lower inflation target, senior leaders are simply recognizing the reality that subpar consumer spending and upstream overcapacity will result in another year of weak price growth.
• On the fiscal side, setting the highest budget deficit target in decades would usually signal that officials are really looking to juice economic growth.
• But given the persistent and intense fiscal austerity at the local level, even a historically high central budget deficit will mostly just go toward filling the hole that local governments have been digging.

The upshot: China’s economic trajectory in 2025 will look a lot like that of 2024. Indeed, the economic headwinds from last year are still blowing strong, including:

• A dismal property market
• Industrial overcapacity
• Weak consumer confidence and spending
• Deflationary pressures
• And now we can add – a renewed trade war with the US.

So we expect more of the same from the economy this year, with:

• Solid manufacturing and industrial performance
• Persistent weakness in household confidence and spending
• An ongoing supply-demand mismatch
• Heavy reliance on exports to soak up excess supply
• A still-subdued property sector

Put it all together, and officials will stimulate just enough to hit the 5% GDP growth target again.

• And just like last year, things won’t feel great for many businesses and consumers, whose confidence – and willingness to invest and spend – will remain subdued.
• Likewise, global trade partners won’t be thrilled by a continued tidal wave of cheap Chinese exports.

Welcome to 2025 – the 2024 redux.

Andrew Polk, Co-founder, Trivium China

What you missed

US-China

On Tuesday, China hit back at the US in response to the second round of 10% US tariffs on Chinese imports by:

• Placing an additional 15% tariff on US sales of chicken, wheat, corn, and cotton.
• Placing an additional 10% tariff on US sales of sorghum, soybeans, pork, beef, and a broad range of aquatic products, fruits and nuts, vegetables, and dairy products
• Adding 15 US companies – mostly defense companies – to the Control List, China’s version of the US Entity List
• Adding 10 more US companies to the Unreliable Entity List (UEL) – all defense companies
• Banning US biotech giant Illumina from exporting gene sequencers to China, as punishment for previously being added to the UEL in February
• Launching an anti-circumvention investigation into US fiber optic product exports
• Suspending imports of lumber from the US – saying pests have been found in these products
• Suspending the soybean sale licenses of three US trading companies

Our take: China’s response to the March round of US tariffs was very similar to the February response, as expected.

• China took a multi-faceted approach – using its wide array of new economic coercion tools to hit back.
• The approach was once again asymmetric – with China looking to impose targeted pain in key areas, as opposed to across-the-board tariffs.
• For the most part, the moves were symbolic – with sanctioned defense companies having virtually no commercial interests in China, and Illumina’s imports into China offset by the company’s domestic operations and sales, which were not restricted.

The bottom line: China is undertaking a measured response to tariffs so far, making sure not to stand idly by, but also leaving plenty of scope for de-escalation and negotiation.

• We expect Trump and Xi to have a phone call or face-to-face meeting in the coming months.
• The outcome of that call or meeting will determine whether tensions continue to ratchet up, or if sustained negotiations can begin.

Tech

On Thursday, the heads of the macro planner (NDRC), the finance ministry (MoF), the commerce ministry (MofCom), the central bank (PBoC), and the securities regulator (CSRC) held an econ-focused press conference on the sidelines of the Two Sessions.

• But rather than focusing solely on financial and economic issues, officials largely discussed efforts to better support tech innovation in China.
• The biggest announcement was an impending move to establish a new national-level venture capital fund of RMB 1 trillion to finance tech research and commercialization.

Econ and finance

According to customs bureau (GAC) data released on Friday, China’s trade performance in the first two months of 2025 was disastrous.

• Exports increased by 2.3% y/y in the first two months of the year, a steep decline from the 10.7% growth posted in December. Imports fell a staggering 8.4% y/y, reversing a 1.0% increase in December.
• Exports will struggle to be a key growth driver again this year, so domestic demand will need to pick up the slack. That makes China’s push to boost domestic consumption this year absolutely crucial.

Corporates

Auto giants BYD and Geely are battling to dominate China’s new energy vehicle (NEV) market.

• On Monday, Geely unveiled G-Pilot – an ambitious program to equip advanced autonomous driving (AD) capabilities across a wide range of NEV offerings, including mass-market models.
• This follows BYD’s launch of God’s Eye, an initiative to implement advanced AD capabilities – once reserved for high-end NEVs – across its entire lineup.
• China’s NEV market is quickly entering the age of AD, where advanced capabilities will shift from being a luxury to the standard.

Politics

On Saturday, Wang Xinwei, 57, replaced Li Lecheng as governor of northeastern Liaoning province.

• Li, 60, has moved to a new role as Party boss of the industry regulator (MIIT) in Beijing.
• Several of Wang’s predecessors advanced to higher office, including the Party’s anti-corruption czar, Politburo Standing Committee Member Li Xi. If Wang performs well, he could be an early contender for the 2032 Politburo.

Net zero

This year’s Government Work Report vowed to accelerate renewables megaprojects, implement power market reforms, and upgrade grid infrastructure.

• China’s rapidly expanding renewable energy fleet is flooding the grid with enormous quantities of intermittent power.
• But infrastructure and market bottlenecks – including insufficient grid flexibility, power transmission constraints, and incomplete power market reforms – undermine the efficacy of renewables investments.
• To tackle these bottlenecks, Beijing promised to accelerate the development of large-scale desert renewable energy bases and offshore wind projects, the Unified National Power Market (UNPM), flexible power capacity, and interprovincial ultra-high voltage (UHV) power transmission projects.

Agriculture and commodities

Beijing is targeting over 700 million metric tons of grain output in 2025.

• The target – 7.7% higher than last year’s goal of 650 million tons – was announced by Premier Li Qiang in the Government Work Report (GWR) on Wednesday.
• The GWR’s grain target is best understood as Beijing’s bottom line for staple crops. The real ambition is in the ongoing campaign to boost staple crop output to hit 745 million metric tons annually by 2030.

Foreign affairs

On Friday, top diplomat Wang Yi gave his customary Two Sessions presser. Despite the presser’s – uh – choreographed nature, this annual event lays out China’s official position on a broad range of geopolitical issues. Here are four things we learned.

• China’s ready for a showdown with the US but would prefer de-escalation.
• China-Russia relations are as strong as ever.
• China’s diplomacy will feature more carrot and less stick.
• The mainland is staying the course on Taiwan.

As always, it was a busy week in China.

• Thank goodness Trivium China is here to make sure you don’t miss any of the developments that matter.