President Xi Jinping signalled China’s determination to push ahead with an ambitious growth goal this year despite the trade war. If Donald Trump boosts tariffs further, analysts say Beijing will need to unleash big stimulus to hit the target.
China announced an expansion target of about 5 per cent for 2025 at its annual parliamentary session on Wednesday, marking the first time in more than a decade Beijing had set the same goal for three straight years. That resolve to put a floor under growth came less than a day after Trump hiked fresh blanket US tariffs on Chinese goods to 20 per cent, with more levies looking inevitable.
If Donald Trump boosts tariffs further, analysts say Xi Jinping will need to unleash big stimulus to hit China’s growth target.Credit: AP
As tariffs threaten to damage a major driver of growth, Chinese officials are trying to balance projecting strength while managing financial risks. Unleashing greater stimulus to fill a hole left by falling US trade would undermine Xi’s long-standing efforts to rein in surging debt. Beijing has resisted “bazooka” stimulus since the pandemic, in contrast to previous downturns and other major economies.
“It would come down to a political decision about what price they’re willing to pay for growth,” said Christopher Beddor, deputy China research director at Gavekal Dragonomics in Hong Kong, referring to a scenario involving big tariff hikes. “Officials might be able to ramp up fiscal stimulus to hit the target, but the question is whether they’d be willing to accept a substantial rise in debt to do that.”
One way China could avoid having to unleash more stimulus would be to strike a deal with Trump. That could see Beijing pledge to buy more US goods, or offering for domestic firms like electric vehicle giant BYD to put factories on American soil. While Trump signalled a desire to speak with Xi last month, they have yet to have a call since the US leader took office, putting the focus on domestic policy.
For now, Xi is keeping calm as Trump’s trade war unfolds … But there are no guarantees things will stay cordial if tariff levels do seriously jeopardise China’s growth trajectory
If tariffs rise to the 60 per cent level Trump floated on the campaign trail, they could knock 2 percentage points off China’s growth this year, according to Larry Hu, chief China economist at Macquarie Group. While losing that revenue would be a challenge, analysts agree stimulus could mitigate the impact.
Officials have already alluded to more support ahead. Shen Danyang, the official in charge of drafting the government work report, said, “There are, in fact, backup plans for macroeconomic policies, and policies will be adjusted dynamically to respond proactively to the changing situation” at a press briefing on Wednesday.
Any additional measures will likely come after officials have had time to digest the effect of tariffs on growth. China will release its official first-quarter economic growth data in mid-April, which will be followed by an economy-focused huddle of the decision-making politburo.