The watchword for China's policymakers in 2025 is continuity. As Beijing aims for "about 5%" GDP growth by 2025, the government is focusing on boosting consumption, improving investment effectiveness, and increasing domestic demand. At the same time, it aims to foster new productive forces and stabilize the property market. We aren't surprised.

S&P Global Ratings sees strong policy continuity into 2025, with no U-turns. The Chinese government continues to carefully calibrate its stimulus measures to leave room for other major obstacles, including U.S. tariff threats, and a potential U.S. recession.

Our chief Asia-Pacific economist and analysts examine the credit implications for China's macroeconomy and key sectors such as property, automotive, batteries, shipbuilding, AI, consumer goods, infrastructure, local governments and banking.

Frequently Asked Questions

MACROECONOMIC OUTLOOK

How do you assess the targets set out in the Two Sessions? What challenges do you see? (Asia-Pacific Chief Economist Louis Kuijs) 

China's policymakers repeated an ambitious but unchanged GDP growth target of "about 5%". Fiscal stimulus is higher than our predictions from three months ago but lower than our recent expectations.

A key takeaway was the emphasis on boosting consumption and supporting the private sectors. Other priorities included:

• Potential for additional government intervention in health insurance, education, and social security;
• Plans to liberalize the service sector to boost productivity;
• Proposed debt stimulus of Chinese renminbi (RMB) 11 trillion (below our forecast of RMB15 trillion).

The meeting also set out the challenges and observations. Notable among them was that limited organic growth necessitates continued fiscal support. China's property market and U.S. tariffs remain top of mind.

What are the top three challenges to China's economy? Soft domestic consumption, a weak property market, the U.S. imposing more tariffs, among others? (Louis Kuijs) 

The key external challenge is of course the impact of rising U.S. trade tariffs on China's exports. They will also weigh on investment, and cause other spillover effects, with heightened uncertainty adding strains.

Domestically, it remains to be seen when the property market will convincingly bottom out. This is crucial to the overall outlook for domestic demand since a stabilization of housing prices would help improve consumer confidence.

The second key domestic challenge is boosting consumption. The government made this its number one economic policy objective for 2025 in the Prime Minister's Government Work Report. Over the short term, raising consumption requires higher household income and better confidence, in our view. Measures the government is planning such as increasing pensions, minimum wages, and civil service wages should help. The question is will they be enough.

Just as importantly, structural reforms are needed to improve people's access to health, education, and social security--especially in the case of migrants to cities--so that they can feel more confident spending a larger share of their income. Initiatives such as Hukou (registration) system reform, raising the basic pension and the subsidy for basic medical insurance should help in this regard.

That said, the amounts committed to these areas in the budget are quite small. It may take more action to reduce household saving rates.

Will the policies and stimulus packages announced suffice to help China achieve its GDP growth target? (Louis Kuijs) 

Relative to the scale of the headwinds, we don't think the impact of the policies announced so far will be large enough. As a result, we forecast 4.1% GDP growth in 2025. It is possible that, in a few months, disappointment among policymakers about the pace of growth will lead to additional fiscal measures.

The pace of organic growth in China remains quite soft, while the outlook for exports is weak on account of the U.S. tariffs and their direct and indirect impacts. Raising growth to meet the "about 5%" growth target would require substantial government action, both in terms of fiscal expansion and in terms of aiding the stabilization of the housing market and improving private sector confidence.

We see the fiscal plans as tantamount to a significant fiscal expansion (see "Credit FAQ: China's Latest Budget Shows A Willingness To Take On More Debt," published on RatingsDirect, March 10, 2025).

IMPACT ON KEY SECTORS DRIVING THE ECONOMY

PROPERTY

Could the sector bottom out in 2025? Are there any significant changes in the government's stance toward the sector since policies announced in late September 2024? (Edward Chan) 

We continue to anticipate primary property sales could stabilize toward the second half of 2025 (see "China Property Watch: Charting A Path To Stabilization," Oct. 17, 2024). There have already been improvements in the secondary property market in selected higher-tier cities since October last year (see "Surging Secondary Sales To Stabilize China Property In 2025," Jan. 22, 2025).

The government has officially recognized that stabilizing the property market is crucial for the economy. To support this, they are continuing several key policies:

• Reducing costs and barriers related to home buying, such as by lowering mortgage rates, and by cancelling home-purchasing restrictions for selected cities;
• Building homebuyer confidence, such as by ensuring project completions.

The government also appears more committed to optimizing housing supply, for example, by:

• Increasing the effort in the redevelopment of urban villages and dilapidated housing. This might help create incremental property buying demand as residents from such housing may need to relocate;
• Addressing the shortage of social housing. We believe this might reduce excess supply if the government purchases existing inventories from developers and converts them into social housing.

Furthermore, the government aims to reduce the risks of debt defaults by developers. We believe this could help stabilize the sector because sporadic defaults by developers can dampen homebuyer sentiment. The property sector remains one of the major sources of nonperforming assets for banking sector in 2025.

HEAVY INDUSTRY

AUTOS AND BATTERY MANUFACTURING

What factors caused an increase in China's car exports in 2024 despite trade barriers? What's the outlook for 2025? (Claire Yuan) 

In short, cost and quality. China's auto exports grew by 23% year-on-year, reaching 6.4 million units in 2024, according to China Customs. Rising trade barriers primarily target China-made electric vehicles (EVs), which represent about one-third of the country's total auto exports.

Despite the higher tariffs, the cost advantage and strong functionality of these vehicles have led to increased demand from Central and South America, the Middle East, and other parts of Asia. This surge in demand more than offset the softer demand from the EU and some other markets, resulting in 16% growth in China's EV exports in 2024.

Meanwhile, China's exports of internal combustion engine vehicles further grew by 26% in 2024, mainly supported by higher demand from Russia and the Middle East. The withdrawal of international carmakers from Russia following the Russia-Ukraine war allowed Chinese auto producers to penetrate the market.

We anticipate that China's auto export growth will slow to below 10% in 2025. This is because of the high export base, the introduction of additional tariffs, potentially weaker demand in some overseas markets, and slowing progress in electrification in Europe.

Exports to Russia, which is China's largest market for auto exports, may decline following Russia's decision to increase fees for scrapping old vehicles. Additionally, persistently high interest rates and stricter lending policies could limit auto demand in certain Asian markets.

What supported China's higher battery exports in 2024? (Stephen Chan) 

China's unit exports of lithium-ion batteries for energy storage and EVs rose 8% in 2024, after a 4% decline in 2023. This stems mainly from a surge in demand for energy storage battery amid rising investment in renewable energy projects in the U.S. and Europe. Europe accounted for 37% of China's total battery export by value and the U.S. 25%. Notably, energy storage batteries were not subject to additional tariffs from the U.S. last year.

A well-established supply chain means China's lithium-ion batteries are at least 30%-40% cheaper than other regions. This pricing advantage enabled China to gain further traction in battery exports in 2024.

How will Chinese battery manufacturers adapt to changing emissions policies in major markets, particularly with the U.K./EU policy shifts and the U.S. withdrawal from the Paris Agreement? (Stephen Chan) 

China's export growth of lithium-ion batteries will likely slow in the next two years. This is because of softer emission-reduction targets in the U.S. and Europe and the additional 20% tariff from the U.S. on Chinese goods.

That said, the build-out of local capacity in the U.S. and Europe could take years, limiting customers' ability to shift orders to non-Chinese battery makers. This will likely support China's battery exports over the next one to two years together with rising demand for energy storage batteries in markets such as Australia and Saudi Arabia.

SHIPBUILDING

How would proposed U.S. port fees on Chinese-built vessels affect China's shipbuilding industry? (Claire Yuan) 

Such fees could hinder the growth prospects and market position of Chinese shipbuilders. Fleet operators that heavily depend on U.S. ports may cancel their existing orders or halt new orders with Chinese shipyards. Such a shift would erode the revenue and profits of these shipbuilders. Additionally, a decline in orders could cause a glut in China's shipbuilding sector, intensifying competition.

Fleet operators may find it hard to shift their new orders to non-Chinese shipbuilders, given limited capacity at South Korean and Japanese shipyards. Instead of cancelling orders and incurring high penalties, shipping companies might adjust their fleet deployment or routes to mitigate service fees.

This could include making fewer calls at U.S ports, using larger vessels to lower unit costs, redirecting goods through Canadian or Latin American ports, and redirecting goods to the U.S., or establishing new entities to operate China-made vessels for non-U.S routes.

The proposed fees aim to reduce China's growing influence in the global maritime and shipbuilding sectors. Cost advantage and improving technology have helped Chinese shipyards increase market share in the past few years. In 2024, about 74% of the global shipbuilding new orders were placed at Chinese shipyards, and nearly 56% of the world's new ships delivered were built by Chinese shipbuilders, according to China Association of the National Shipbuilding Industry. The current order backlog of Chinese shipbuilders can support their revenue growth in the next two to three years.

OTHER SECTORS

TECHNOLOGY

How will China's push for AI affect domestic technology companies and data centers? (Clifford Kurz) 

China's emphasis on AI marks a big shift in the country's tech landscape. Even before these sessions, Chinese enterprises were increasingly integrating large language models and generative AI into their operations. The success of companies like DeepSeek has accelerated this trend. As a result, we expect tech companies to invest heavily in AI infrastructure, including AI chips, data centers, and talent acquisition for AI software development.

Major internet companies such as Tencent Holdings Ltd. and Alibaba Group Holding Ltd. are leading this charge. Alibaba recently committed more than RMB380 billion to AI and cloud computing over the next three years; and Tencent has made significant purchases of advanced AI chips. We anticipate more government support for the sector, particularly in semiconductors and data centers. This support may include land grants, bank loans, subsidies, and tax rebates, further bolstering the sector's growth.

How do U.S. restrictions affect China's AI ambitions? (Clifford Kurz) 

U.S. restrictions on AI chip exports are pushing Chinese firms to adopt more domestically produced AI chips. It remains uncertain whether Chinese AI chip production can meet demand, especially given the limitations on acquiring advanced semiconductor equipment.

Rated Chinese internet issuers have meaningful financial buffers to absorb growing investments in AI, but disruption risks persist due to government efforts to promote competition and innovation.

CONSUMER APPLIANCE AND ELECTRONICS

Can the government's expanded replacement program and bank-supported consumer spending initiatives sufficiently counteract the negative effects of U.S. tariffs? (Manqi Xie) 

The impact of the subsidy program for consumer appliance and electronics is positive. Consumers are taking advantage of it, although the pace of growth will not be as strong as when the program started last year. This is because consumers with the highest need or urge to purchase have been fulfilled.

Among the measures aimed at boosting private consumption is the subsidy for consumer purchases, known as the trade-in program. Initially focused on large appliances, the program will now include a broader range of electronics and small appliances, such as PCs and smartphones. Since local governments can determine how the program is implemented in their areas, we anticipate that the subsidy will apply to a wider variety of consumer products.

U.S. tariffs affect consumer product sub-sectors unevenly. Global PC makers face greater strain because of their high sales in the U.S. The positive effects of China's subsidy program may not fully mitigate the negatives. In contrast, China-branded appliances and electronics, including smartphones, face limited negative impact due to their low sales ratio in the U.S.

INFRASTRUCTURE/LOCAL GOVERNMENTS

How can local governments support the central government's urbanization and regional development initiatives? (Wenyin Huang) 

Local and regional governments (LRGs) will remain pivotal in advancing the central government's policy initiatives, leveraging their local expertise to drive regional development, urbanization, and public service enhancements. These initiatives seek to increasing purchasing power, housing, and employment across different areas.

While the central government has been increasing subsidies for local capital expenditure, LRGs will remain a significant source of funding. The record new bond issuance quota allocated by the central government to local governments in 2025 underscores this commitment. This totals RMB0.8 trillion in general purpose bonds and RMB4.4 trillion in special purpose bonds (SPBs).

The proceeds from SPBs are earmarked for essential infrastructure projects and social goods, with more focus on urban redevelopment, including urban village renewal programs. While funding for these initiatives will not solely come from local governments, their investments will be critical in lowering the overall cost of investments and attract other investors. LRGs can now invest in a broader range of projects, some with greater flexibility in capital contribution.

Local governments will allocate funds not only for direct project investment but also tackle macroeconomic challenges, facilitating regional development. This includes using proceeds to reduce property and land inventories by repurchasing idle land and unsold apartments for conversion into social housing. Guangdong and Beijing are the first to issue SPBs on this front. Beneficiaries may include some LGFVs, who could in turn receive financial relief.

Furthermore, local governments can now use borrowed funds to mitigate systemic financial risks by settling hidden debts and arrears, easing the burden on LGFVs and suppliers.

What roles do LRGs and local government financing vehicles (LGFVs) expect to play in repurchasing land and housing inventory? (Chris Yip) 

Part of the larger quota for SPBs will be designated for purchasing idle land parcels and converting unsold commercialized housing to social housing. Idle land where developers lack the funds to develop will be a priority.

As a start, in February Beijing issued RMB11.7 billion in SPBs for land inventory and shantytown redevelopment. Guangdong province also issued SPBs for repurchasing idle land of RMB30.7 billion, covering 86 land parcels in 19 cities in the same month. We expect more of such issuances.

An LGFV in Zhengzhou, Henan province, has acquired 81 unsold property projects in recent months, according to media reports. This transaction involved a total of 106,000 housing units to be converted into subsidized rental units and other types of social housing. This seeks to alleviate the pressure of building from scratch, while helping to absorb the inventory glut. There are also higher targets of urban village redevelopment involving 1.5 million-2 million housing units, a jump from prior years.

Given the undertaking relates to social housing and urban redevelopment, LGFVs are a natural fit for the job. Although the projects are meant to be market-oriented and commercially viable, we doubt they will yield large financial returns overall. The key goal for LGFVs to avoid additional financial burden or accumulation of hidden debt remains.

Does S&P Global Ratings expect infrastructure investment to grow? (Chris Yip) 

Yes. Infrastructure investment will still grow on the back of the enlarged SPB quotas and continued investment needs in the country, especially in areas of transportation and new energy. The pace will likely remain at roughly 5% overall this year. This is despite the risk of debt control on certain regions and additional scrutiny on project viability hindering progress.

In 2024, overall infrastructure investments, excluding power and utilities, grew 4.4%. Rail will remain a focus, despite growth in investments of 13.5% last year. The government plans another 2,600 kilometers of new rail lines for 2025.

Power and utilities investment grew 23.9%, with continued large investments in solar and wind generation capacity. We expect another 200 gigawatts of renewable capacity to come online in 2025, while grid and energy storage investments are set to keep pace.

While central government state-owned enterprises (SOEs) usually handle rail and power sectors, we anticipate their involvement at the local level given their large scale. In addition, the government was explicit in encouraging private capital participation in infrastructure projects. High-speed rail and new energy are slated for more public-private partnership structures.

FINANCIAL INSTITUTIONS

What risks and opportunities do banks face in responding to government strategies to support sustainable consumer spending? (Ryan Tsang)  

We expect consumer credit (consumer loans and credit card loans) will grow at a slightly faster pace than the 6.2% growth in 2024. An increase in consumer credit could help banks to alleviate net interest margin pressure because these exposures usually attract higher interest rates than other loans. However, a substantial pickup in the pace of consumer credit will test the banks' risk management capability, given the weakened consumer credit performance.

Banks' interpretation and implementation of these policies will significantly affect their risk profiles. Authorities have encouraged financial institutions to support consumer spending and provide relief to borrowers, but they say keeping risks at a manageable level must be a prerequisite.

Some Chinese banks have endured an expansion and contraction cycle for credit cards and consumer lending and suffered from rising write-offs in recent years. Some banks decelerated their unsecured consumer lending business growth or managed down their exposures. The overall growth rate was chopped by about one-third to 6.2% in 2024 from 9.4% in 2023. We expect the growth rate of consumer credit to rebound modestly in 2025, likely below 10%.

Writer: Lex Hall

Related Research

• Credit FAQ: China's Latest Budget Shows A Willingness To Take On More Debt, March 10, 2025
• Surging Secondary Sales To Stabilize China Property In 2025, Jan. 22, 2025
• China Property Watch: Charting A Path To Stabilization, Oct. 17, 2024