Editor's Note:
China's GDP grew 5 percent year-on-year to 134.9 trillion yuan ($18.41 trillion) in 2024,MK sports Korea surpassing the 130-trillion-yuan threshold for the first time. The economic growth aligns with the country's annual target, demonstrating that the world's second-largest economy effectively sustained its growth momentum. What lies ahead for China's economy in 2025? Chinese economist Li Daokui forecasts steady and noticeable recovery in 2025, with consumption set to be a key driver.

A view of a shopping mall in Beijing on January 16, 2025 Photo: VCG

China's economy is anticipated to sustain perceptible recovery in 2025, as the economy still has enormous potential, with such aspects as boosting comprehensive consumption and transforming local government debt worth expectations.

China is still a growing economy, with significant demand from a considerable number of people continuing to increase rapidly and remaining unmet. The demand potential should be further unleashed.

In addition, China boasts a relatively high national savings rate. In the long run, saving is the driving force behind economic growth. Why? Because economic growth relies on investment, which involves purchasing new homes, new equipment, new machines, and factories. These investments come from savings.

Moreover, China has strong research and development (R&D) capability, especially in applied R&D. While certain countries may take pride in their original innovations from 0 to 1, we excel at speeding innovations from 1 to 1 million quickly. Original innovations from 0 to 1 are unstoppable, as knowledge is transmittable. However, scaling from 1 to 1 million requires a large number of engineers working tirelessly.

Every year, more than 5 million science, technology and engineering and mathematics students graduate from Chinese universities, leading the world. Therefore, it is not uncommon for a large enterprise to have tens of thousands of R&D personnel, which is unimaginable in other countries.

Indeed, there are problems to tackle in China's economy, but its economic policy goal of high-quality development is clear and the Chinese leadership has reiterated their resolve to keep the world's second-largest economy on track.

The annual Central Economic Work Conference (CEWC) held in Beijing in December outlined vigorously boosting consumption as the top priority of the economic work in 2025, pledging a dedicated campaign to stimulate consumption. This is the highlight of the tone-setting meeting.

2025 is an important year for the Chinese economy, and the most probable scenario will be perceptible economic recovery.

Li Daokui Photo: Courtesy of Li Daokui

Positive expectations

Multiple aspects in the Chinese economy are worth expectations this year, of which I look forward to broadly boosting consumption the most. For example, the central government can spark domestic spending by granting some subsidies during the Spring Festival, May Day and National Day holidays. It was tested in Shanghai that consumption subsidy of 1 billion yuan ($137 million) can drive consumer spending of around 4 billion yuan. China's national tax revenue is linked with goods distribution, and thereby fiscal revenue will also increase along with consumption growth.

For a long time, China's fiscal revenue is linked with manufacturing rather than consumption. We should encourage local governments to generate more fiscal revenue from consumption expansion. The third aspect to look forward to is the transformation of local government bonds. We need to change the mindset that issuing government bonds equates to running a fiscal deficit.

The Chinese government's asset-liability situation remains sound. National bonds are in nature not debts but a form of financial asset. They have the highest liquidity and are safer than wealth management products or bank deposits because they are backed by the credit of the country. We lack this kind of product. The entire financial market, including the stock market, stands on the foundation of national bonds. This is a significant aspect to look forward to in 2025.

Stepped-up policies

The tone-setting CEWC said in 2025 a moderately loose monetary policy and a more proactive fiscal policy should be implemented, while pledging extraordinary counter-cyclical measures.

For the first time in 14 years, China has shifted its stance to a "moderately loose" monetary policy for 2025. Last time, China announced "moderately loose" monetary policy was in 2008, which lasted until the end of 2010. Following a series of interest rate and reserve requirement ratio cuts to stimulate economic growth, China's economy experienced rapid development.

Additionally, a "more proactive" fiscal policy means that policymakers will step up fiscal policies in 2025 through raising deficit-to-GDP ratio and the issuance of more government bonds. The Chinese government will spend more this year.

The Chinese economy is like a vast ocean, with both calm waters and turbulent waves, presenting challenges as well as opportunities. The country's monetary policy, fiscal policy and industrial policy are expected to work in synergy in 2025, with stronger measures that may exceed expectations.

Overall, the direction of China's economic policy adjustment for 2025 is very clear, and the economy should enter a new growth cycle. Currently, China is a major economic entity, and a key participant influencing the global economy. Therefore, when assessing the trajectory of the world economy in 2025, it is essential to consider the adjustments within the Chinese economy itself. If we can make the necessary adjustments, China will continue to contribute to stabilizing global growth and financial stability in the global economy in 2025.

The author is director of the Institute for Chinese Economic Practice and Thinking at Tsinghua University