President Xi Jinping has announced that China’s gross domestic product (GDP) is projected to expand by approximately 5% for the full year of 2024, indicating that the world’s second-largest economy is on track to meet its official growth target.
This disclosure caps off a year marked by economic uncertainty and signals a continuation of policy support into 2025.
A year of stability and progress
“China’s economy was ‘overall stable and progressing amid stability,’” Xi said at a new year event on Tuesday, according to a speech published by the official Xinhua News Agency.
He noted that risks in key sectors had been addressed, while employment and prices remained relatively steady, despite a year of unpredictable economic conditions.
While the precise growth figure will not be released until next month, Xi’s pronouncement confirms a year of significant progress following initial doubts surrounding the 5% growth goal.
This growth was supported by a series of stimulus measures rolled out by policymakers since late September, with economists now forecasting a 4.8% expansion for the year.
Policy support set to continue in 2025
Xi’s New Year’s Eve remarks to the nation’s top political advisory body suggest that support for the economy will continue into 2025, with a reiteration of calls for more proactive macroeconomic policies.
China is anticipated to set a growth target for 2025 roughly similar to this year’s, reflecting leaders’ willingness to adopt more forceful stimulus measures to counter potential impacts from increased US tariffs after President-elect Donald Trump returns to the White House next month.
While an official GDP growth target will be revealed in March, annual legislative sessions will reveal it; and a report from Reuters also indicates a 5% growth target for the coming year.
Navigating economic headwinds
Despite the projected growth, China’s economy continues to be weighed down by weak domestic demand and an uncertain outlook for exports.
Deflation is likely to persist into next year, and the property market remains in a slump.
While Beijing’s initial stimulus measures for the new year may fall short of the radical action needed to stem the decline in prices, officials have indicated a willingness to step up support if growth falters, a measure that was proven to be successful this year.
Monetary easing on the horizon
China’s next easing steps may come from the People’s Bank of China (PBOC), which is expected to provide a liquidity boost to markets by reducing the reserve requirement ratio (RRR) — the amount of cash banks must hold in reserve — a measure they have previously stated as a possibility.
PBOC Governor Pan Gongsheng indicated in October that the central bank might lower the RRR by 25 to 50 basis points depending on liquidity conditions by the year’s end.
However, China’s top leaders at a key economic meeting in December vowed to trim the RRR at an “appropriate time,” without providing more details.
Balancing policy and stability
The PBOC’s decision to delay the RRR cut likely reflects concerns about stabilizing the yuan.
High-profile easing measures like a RRR cut could increase depreciation pressure on the yuan by creating a less favorable yield environment for yuan assets compared to dollar assets, potentially triggering fund outflows.
The yuan did decline to a one year low in December, further putting pressure on the PBOC.
According to Bruce Pang, a distinguished senior research fellow at the National Institution for Finance and Development, the PBOC is preserving policy space to address external uncertainties, especially as they await the new US presidency.
Anticipating PBOC action
Despite the current liquidity in the interbank market, analysts, including Liu Yu at Huaxi Securities, predict that the PBOC is likely to lower the RRR in January before the Lunar New Year holiday, which starts on January 28.
Over the next year, the PBOC is expected to provide long-term liquidity by reducing the RRR further and buying more government bonds, all in an attempt to further stimulate economic activity.
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