At the National People’s Congress (NPC) starting on March 5, Chinese policymakers will likely keep the growth target unchanged at “around 5%”. But we believe a realistic no is around 4.5% which is more an outcome of export reduction due to tariffs than any adverse impact from domestic demand. They might raise the budget deficit from 3% of GDP last year to 4%. But we believe that the increase in fiscal deficit might be driven more by reduction in revenues than the increase in spending. Also as President Xi heads into this meeting, he will be emboldened by the recent Deep Seek success as well as the blistering equity rally, he will also be concerned by the recent tariff measures by US new administration as well as proposed new tariffs from Mexico & Canada. The key focus area of NPC announcements might be funding for a trade in program for equipment renewal and consumer goods as well as spending on the property sector via the buying back of land or helping developers finish pre-sold homes. A moderately loose monetary policy stance is also likely to be reaffirmed at the NPC, though we expect limited policy rate cuts this year, given policy-makers’ recent focus on currency stability. We believe that the NPC most critical outcome will be focusing on stimulating domestic demand because unlike last year, there’s little chance Beijing can bank on a boom in exports. We expect exports to remain flat in CY25 against 6% growth in CY24. Hence clocking the same growth rate this year while grappling with tariff challenges will require greater fiscal expenditure, given US tariffs could stall China’s export engine.
