China must increase domestic consumption and implement stimulus measures to counteract Trump’s tariffs and achieve its economic growth target.

In Short

China struggles to meet its 5% economic growth target due to US tariffs, prompting a potential stimulus package to boost domestic consumption.

The upcoming Politburo meeting is crucial for shaping economic policies and tackling underlying issues like local government debt.

China is facing challenges in achieving its 5% economic growth target this year, primarily due to increased tariffs imposed by the US. These tariffs, currently at 145%, have made it difficult to avoid a repeat of previous economic slowdowns.

To counter these challenges, China must stimulate domestic consumption and divert focus from exports. The Chinese government aims to implement a substantial stimulus package, with estimates ranging from 1.5 trillion to 2 trillion yuan to boost consumer spending, support the housing market, and combat deflation.

Macro measures

Analysts see the necessity for urgent measures, especially as Goldman Sachs predicts only 4% growth for China in 2025. Macro measures could include fiscal spending increases and official interest rate cuts. However, doubts remain about how effectively these policies will provide sustainable demand support.

The upcoming Politburo meeting could be crucial in determining the direction of economic policy and potential reforms aimed at enhancing social safety nets. These reforms would need to address rural-urban divides and support consumption among households.

Despite these efforts, underlying issues such as high local government debt and limited healthcare spending hamstring progress.

A significant shift in policy and mindset within the Communist Party is essential to establish a consumer-driven growth model.