2025 China Market Outlook: Boosting Consumption, Steady Progress

Over the past year, Chinese authorities have made tangible efforts to stabilize the real estate market, maintain financial system stability, and address local government debt, though structural challenges like aging demographics and unemployment remain prominent.

While risk assets such as the Hang Seng Index and CN50 initially benefited from policy support, the lack of detailed measures has led to tempered expectations, limiting the sustainability of bullish momentum.

As 2025 approaches, markets are now positioning for what lies ahead. Key questions include: Will there be a shift in policy focus? What economic challenges will China face? What potential measures might authorities adopt? And could mainland and Hong Kong stocks witness a stronger recovery?

Moderate Easing, Proactive Stimulus, Boosting Consumption & Increasing Deficit

The year-end Politburo and CEWC meetings traditionally set the tone for the following year’s policies. The emphasis on "enhancing extraordinary counter-cyclical adjustments, implementing moderately accommodative monetary policy, and more proactive fiscal measures" signals stronger-than-expected stimulus.

The term "moderate easing" in monetary policy—used for only the second time in 14 years—recalls the 2008–2010 period when China countered the global financial crisis with measures such as monetary expansion and a ¥4 trillion investment plan. These policies drove a short-term economic rebound, pushing the Shanghai Composite up 80% during the stimulus window. However, as the crisis impact faded and the side effects emerged, policy shifted to "prudent" in 2011.

This time, "moderate easing" is paired with “proactive fiscal policy,” an unprecedented dual-loosening stance from the Politburo. Expectations for stabilizing the stock and property markets and driving structural reforms have also been communicated effectively.

At the CEWC, notable shifts were seen in key areas. First, "boosting consumption" was prominently emphasized—only the second time in the last decade (the first being 2022). Notably, consumption now takes precedence over “investment returns” and “domestic demand,” with measures such as trade-in programs, lower borrowing rates, and demand creation in infrastructure and renewable sectors.

Second, "raising the fiscal deficit ratio" was revisited for the first time since 2015, with the removal of "temporary" language indicating a firm commitment.

Overall, the meetings suggest authorities will adopt a dual-easing approach in monetary and fiscal policy, addressing key economic pain points in consumption and real estate while managing market expectations.

China-U.S. Trade Relations: The Elephant in the Room

Despite the easing signals, China’s market reaction—similar to the post-Golden Week and post-Trump election periods—was brief. The lack of approved execution budgets ahead of the March National People’s Congress offers partial explanation, but unresolved tariff issues remain a significant overhang, increasing uncertainty for Chinese risk assets.

Expectations of rising tariffs could front-load exports, potentially boosting Q1 GDP. However, prolonged trade barriers would directly hit exports and indirectly impact consumption and investments tied to export-related sectors.

The enduring tensions between the two economic giants are a pivotal factor shaping 2025 market dynamics. Growth forecasts for China hinge heavily on tariff scenarios and the government’s policy response.

Trump’s proposal for a 10% tariff—less extreme than the 60% floated during his campaign—has traders viewing the differences in timing, magnitude, and China’s countermeasures as key negotiation levers.

Rather than preempt US moves, China tends to respond post-implementation. To stabilize domestic growth, potential measures include devaluing the yuan to support exports, cutting reserve ratios and interest rates, increasing monetary supply, and boosting fiscal deficits to drive domestic demand. Additionally, China may retaliate by imposing tariffs on US imports.

Should tariffs fuel U.S. inflation, combined with Trump’s restrictive immigration policies challenging labor markets and growth, China’s policy resilience could become relatively more attractive.

Balancing Act Ahead

Looking ahead to 2025, China faces two key questions: the two key issues for China’s economy are policy direction and U.S. tariff risks. The central issue is whether policymakers have reached an “whatever it takes” moment.

In my view, the answer is no. While a series of stimulus measures have been introduced since late September, the emphasis on “promoting stability through progress” at year-end meetings indicates that maintaining market stability remains the top priority. Instead of over-stimulating, China’s task next year will be to strike a delicate balance.

China’s current growth relies heavily on exports and industrial production, while real estate and consumption remain weak. Authorities must consolidate existing strengths while stimulating domestic demand and other sectors. The PBoC may expand its balance sheet, purchase government bonds, and direct funds toward consumption, real estate, advanced manufacturing, and public welfare.

Second, balancing US-China trade relations and the yuan’s exchange rate. While yuan devaluation could support exports, it risks higher import costs, imported inflation, and capital outflows, jeopardizing sustainable growth. A comprehensive policy mix is needed, including boosting consumption, supporting services and advanced manufacturing, nurturing new growth engines like renewables, and diversifying trade partnerships to mitigate external risks.

Stimulating consumption remains key to achieving balance and growth. However, beyond trade-in programs for goods, stronger consumption of discretionary items depends on confidence in future income and economic prospects. Structural challenges—such as deflation, hidden local debts, high property inventories, and an aging population—mean market confidence cannot be rebuilt overnight.

If the fiscal deficit ratio increases from 3% to 4% of GDP in 2025, it would require approximately ¥1.32 trillion in new government bond issuance. This could prompt the Ministry of Finance to issue ultra-long-term special bonds and local government special bonds to address these challenges. Traders will need to see tangible economic improvements in data to fuel sustained bullish momentum in A-shares and Hong Kong stocks.

Staying Vigilant, Remain Flexible

In conclusion, China’s economy stands at a critical juncture, facing domestic structural challenges and external tariff pressures. The effectiveness of policy measures will be key, though their outcomes remain uncertain.

2025 is set to be a highly volatile market for China. For traders, staying vigilant, flexible, and ready to adapt to market shifts will be crucial to identifying opportunities and managing risks.