mkphoto taken from Jingshan Hill on Aug. 12, 2024 shows the skyscrapers of the central business district (CBD) on a sunny day in Beijing, capital of China. Photo: Xinhua" src="https://www.globaltimes.cn/Portals/0/attachment/2024/2024-12-02/c396ee02-9683-487a-995c-57246eff1d0c.jpeg" />

This photo taken from Jingshan Hill on Aug. 12, 2024 shows the skyscrapers of the central business district (CBD) on a sunny day in Beijing, capital of China. Photo: Xinhua

After China's economy achieved the 5 percent year-on-year growth target in 2024 despite facing significant challenges, some major macroeconomic consensus points started to emerge in early 2025.

The results from the incremental policies introduced since September 2024 demonstrate that the country has grasped the causes of the issues in managing the macro-economy. Strengthening efforts within the current policy framework is deemed a priority. The guiding principles of the Central Economic Work Conference call for sustained efforts across multiple domains, including monetary and fiscal policies.

Will China's macroeconomic regulation and adjustment in 2025-2026 be simply a continuation and intensification of the policy combination in 2024? To answer this question, the observers need to recognize that China's macroeconomic regulation and control framework has initially completed the tasks of the first stage and is moving toward the second stage. In general, the macroeconomic adjustments in a large-scale economy like China's can be divided into three stages.

In the first phase, the primary goal is to mitigate economic pressures, preventing "over-cooling" in the economy and avoiding the outbreak of systemic risks. Currently, based on data from the real estate and stock markets, price indices, financial liquidity, consumption and investment, there are signs of stabilization in China's macroeconomy. The "over-cooling" concerns about the economy have been effectively alleviated.

In the second phase, on the foundation of stabilizing growth and preventing economic "over-cooling," China may adopt a more targeted approach. On one hand, the country could continue to maintain the intensity of macroeconomic regulation; on the other hand, the country could develop a comprehensive solution to address the underlying issues.

In the third phase, a deep and substantial adjustment of the institutional mechanism will be carried out based on precise policy implementation. This adjustment aims to fundamentally address various deep-seated issues, allowing economic development to enter a new, balanced trajectory.

Liu Yuanchun Photo: Courtesy of Liu Yuanchun

China's macroeconomic regulation and adjustment has achieved early success in its first stage. The key task now is to advance targeted second-stage measures while preparing for the third stage. To continue strengthening the current policy combination, it is essential to focus on the following four key points.

First, a proactive fiscal policy has drawn significant market attention. The implementation of a more proactive fiscal policy should not overly focus on the deficit ratio. Instead, it should prioritize the growth rate of the fiscal expenditure. 

Growth in fiscal expenditure in 2025 and 2026 will be central to a more proactive fiscal policy. This is because when there is a decline in fiscal revenue, measuring the proactivity of the policy solely based on the deficit ratio will be inaccurate. The country needs to redefine the "proactive" connotation of fiscal policy from the perspective of the actual experiences of market entities, which is reflected in the growth of fiscal expenditures. This growth rate should align with the target growth rate of nominal GDP - about 5 percent.

Second, the implementation of an active fiscal policy should go in tandem with a more proactive monetary policy. The easing and proactivity of monetary policy are equally important for preventing "over-cooling" of the economy while avoiding deflation.

Third, the current headwinds may continue for a prolonged period, requiring a proactive, cross-year approach to macro regulation. It is advisable to organize key indicators systematically over a two-year period while providing more positive and sustained policy support to the market. This approach will help mitigate market concerns regarding possible policy instability.

Fourth, the focus of a more proactive fiscal policy and monetary policy should avoid excessive generalization. It needs to concentrate on those fundamental issues. 

While maintaining continuous expansion of nominal growth in domestic demand, it is crucial to pay attention to the adjustment and performance of the real estate sector. The introduction of the unconventional real estate relief policies and reform measures is critical in the second phase of macroeconomic adjustment.

By capitalizing on the current strategic opportunities and advancing reform measures, China's economy will be able to transition seamlessly from the first to the second and third stages of macro regulation. This will enable it to achieve stability and sustainability, moving toward a new balance and a new stage of robust development.

The author is president of the Shanghai University of Finance and Economics. The article was excerpted and compiled from an article first published on the China Macroeconomy Forum's WeChat official account. [email protected]