China has set its economic growth target at "around 5%" for 2025, maintaining its previous goal despite mounting trade tensions with the United States. Premier Li Qiang announced the target during the opening session of the National People's Congress (NPC) on Wednesday, as Beijing laid out plans for fiscal stimulus and monetary easing to counter economic headwinds.
To support growth, China's government raised its budget deficit target to "around 4%" of GDP, up from 3% last year, marking the highest level in over a decade, according to Wind Information. The country also plans to issue 1.3 trillion yuan ($180 billion) in ultra-long-term special treasury bonds, an increase from last year's 1 trillion yuan issuance. An additional 500 billion yuan will be allocated to support state-owned banks.
"The external environment is becoming more complex and severe," Li said in his speech. "We must stay the course and work through these challenges."
The NPC gathering coincides with heightened trade tensions as President Donald Trump recently imposed additional tariffs on Chinese goods, doubling duties to 20%. Beijing swiftly responded by announcing new tariffs of up to 15% on select U.S. imports and placing export restrictions on 15 American companies, primarily in aerospace and defense. China also added ten U.S. firms to an "unreliable entities" list, potentially limiting their business operations in the country.
"If the U.S. insists on waging a tariff war, trade war, or any other kind of war, China will fight till the end," a Chinese Foreign Ministry spokesperson said on Tuesday.
China's economy has been under strain due to sluggish consumer demand, declining foreign investment, and persistent weakness in the real estate sector. While the nation achieved 5% GDP growth in 2024, retail sales growth slowed sharply to 3.4% from 7.1% the prior year. Investment in real estate, a key pillar of China's economy, fell 10.6% year-over-year.
Acknowledging subdued domestic demand, Beijing revised its consumer price inflation target to "around 2%," the lowest in over two decades. Consumer prices rose just 0.2% in both 2023 and 2024, reflecting continued deflationary pressures.
To stabilize markets, Chinese officials pledged "timely cuts" to interest rates and the required reserve ratio for banks, which dictates the amount of cash financial institutions must hold. Yields on 10-year government bonds fell slightly after the announcement, while the offshore yuan depreciated to 7.2640 against the U.S. dollar.
Beyond economic policy, the government reaffirmed its hardline stance on Taiwan, vowing to "resolutely oppose separatist activities" while promoting "peaceful development of cross-Strait relations." The statement comes amid growing geopolitical friction, particularly over U.S. arms sales to Taipei.
Investors are closely monitoring the parliamentary sessions for potential regulatory changes, particularly in the artificial intelligence and technology sectors. President Xi Jinping recently met with business leaders, including Alibaba's Jack Ma and AI startup executives, in an apparent effort to bolster confidence in China's private sector.
"There is no denying that AI technologies are accompanied by some unknown risks and challenges and will bring new tasks in areas like security, social governance, morality, and ethics. ... It will inevitably have an impact on production," NPC spokesperson Lou Qinjian said. "China ... is opposed to over-stretching the concept of national security or politicizing economic and technological issues."
In addition to economic policies, China also unveiled a 7.2% increase in its military budget, bringing total defense spending to 1.78 trillion yuan ($245 billion). While the defense budget remains in line with recent years, it underscores Beijing's broader strategy of strengthening national security amid rising global tensions.
As China attempts to navigate economic uncertainty and geopolitical pressure, analysts warn that the ongoing trade dispute with the U.S. could further strain its slowing economy. Wang Yiwei, director of the Institute of International Relations at Renmin University, said Trump's tariffs are aimed at undermining China's position as the "world's factory."
"Many low-end, labor-intensive manufacturing factories in China are already struggling because their profit margins are thin," Wang said. "A 10% tariff hike will force them to relocate to countries like Vietnam, accelerating the hollowing out of China's manufacturing industry."
