China Floods Economy with Stimulus as Trump Tariff Threats Loom

Chinese leaders have pledged to increase the budget deficit, issue more debt, and loosen monetary policy in an effort to maintain stable economic growth as the nation prepares for renewed trade tensions with the United States under President Donald Trump, reports Reuters.

The announcement came at the conclusion of the Central Economic Work Conference (CEWC), a key annual meeting of China's top leaders, held on December 11-12.

"The adverse impact brought by changes in the external environment has deepened," stated national broadcaster CCTV following the closed-door CEWC meeting.

This year's conference comes as China's economy struggles with a severe property market crisis, high local government debt, and weak domestic demand. The threat of increased US tariffs under Trump adds to these existing challenges.

The CEWC pledges echo the dovish tone of a Politburo statement released on Monday, which indicated a shift to an "appropriately loose" monetary policy stance, "more proactive" fiscal levers, and increased "unconventional counter-cyclical adjustments."

The CEWC summary also signaled a higher budget deficit and increased debt issuance at both the central and local government levels. Leaders further promised to reduce bank reserve requirements and cut interest rates "in a timely manner."

"The direction is clear, but the size of stimulus matters, which we probably will find out only after the U.S. announces the tariffs," said Zhiwei Zhang, chief economist at Pinpoint Asset Management, to Reuters.

Analysts view this shift in messaging as a sign that Beijing is willing to prioritize growth over financial risks in the near term.

The CEWC sets economic targets for the coming year, including growth rates, budget deficits, and debt issuance. While these targets are agreed upon at the meeting, they won't be officially released until March's annual parliamentary meeting.

Reuters reported last month that government advisors recommended keeping China's growth target at around 5% for next year. While the CEWC readout acknowledged the need to "maintain steady economic growth," it did not specify a numerical target.

"Maintaining 5% will be quite challenging in 2025, given that the extra 'Trump shock' will hit exports" and capital expenditure, noted Xu Tianchen, senior economist at the Economist Intelligence Unit, to Reuters. However, he added that "a good level of stimulus will prevent a freefall, and I don't think growth will tank below 4.5%."

Trump's renewed tariff threats have already caused significant disruption to China's industrial complex, which exports over $400 billion worth of goods to the US annually. Many manufacturers have shifted production abroad to avoid tariffs.

Exporters warn that new levies will further erode profits, impacting jobs, investment, and overall growth. Analysts also point to the risk of exacerbating China's industrial overcapacity and deflationary pressures.

A Reuters poll last month predicted China would grow by 4.5% next year but suggested that tariffs could reduce growth by up to 1 percentage point.

With exports potentially facing headwinds, Beijing is looking to stimulate domestic demand to drive growth. However, with consumers feeling less wealthy due to falling property prices and limited social welfare, weak household demand poses a significant risk.

While Beijing has repeatedly emphasized the need to boost consumption, concrete policy measures beyond a subsidy scheme for car and appliance purchases have been limited.

The CEWC summary indicated that this subsidy scheme would be expanded, with efforts to raise household incomes and "vigorously boost consumption."

"Markets could be encouraged," said Lynn Song, ING's chief economist for Greater China, to Reuters. "The call to vigorously boost consumption is a good sign."