China pledges more borrowing and interest rate cuts to counter Trump’s tariff threats
China pledged Thursday to increase the budget deficit, borrow more and loosen monetary policy to maintain stable economic growth as it girds for more trade tensions with the United States where Donald Trump is returning as president.
The remarks came in a state media readout of an annual agenda-setting meeting of China’s top leaders, known as the Central Economic Work Conference, held on December 11-12.
“The adverse impact brought by changes in the external environment has deepened,” national broadcaster CCTV said following the closed-door CEWC.
This year’s meeting came with the world’s second-largest economy stuttering due to a severe property market crisis, high local government debt and weak domestic demand. Exports, one of the few bright spots, face the threat of higher US tariffs.
A separate readout from state news agency Xinhua, watched by financial markets for references to the yuan currency, kept a pledge to “maintain the basic stability of the exchange rate at a reasonable and balanced level.”
The CEWC pledges match the tone of one of the Communist Party leaders’ most dovish statements in more than a decade, which was released Monday after a meeting of the Politburo, a top decision-making body.
The Politburo said China would switch to an “appropriately loose” monetary policy stance and “more proactive” fiscal levers, as well as stepping up “unconventional counter-cyclical adjustments.”
In the same vein, the CEWC summary flagged a higher budget deficit and more debt issuance at a central and local government level. Leaders also vowed 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 US announces the tariffs,” said Zhiwei Zhang, chief economist at Pinpoint Asset Management.
This dovish shift in messaging shows China is prioritizing growth over financial risks, analysts said.
At CEWC, Beijing sets targets for economic growth, the budget deficit, debt issuance and other variables for the year ahead. The targets are agreed at the meeting but won’t be officially released until an annual parliament meeting in March.
The CEWC readout said it was “necessary to maintain steady economic growth,” but did not mention a specific rate.
“Maintaining 5% will be quite challenging in 2025, given that the extra ‘Trump shock’ will hit exports” and capital expenditure, said Xu Tianchen, senior economist at the Economist Intelligence Unit.
“However, a good level of stimulus will prevent a freefall, and I don’t think growth will tank below 4.5%.”
Tariff threats
Trump’s tariff threats have rattled China’s industrial complex, which sells goods worth more than $400 billion annually to the US. Many Chinese manufacturers have been shifting production abroad to escape tariffs.
Exporters say the levies will further shrink profits, hurting jobs, investment and economic growth in the process. They would also exacerbate China’s industrial overcapacity and deflationary pressures, analysts said.
If exports take a hit, China needs to look internally for a new growth engine. But consumers feel less wealthy due to falling property prices and minimal social welfare. Low household demand poses a key risk to growth.
Beijing has issued increasingly forceful statements on boosting consumption throughout the year, but it has offered little in terms of policies apart from a subsidy scheme for purchases of cars, appliances and a few other goods.
The CEWC summary said the scheme would be expanded and pensions raised, and that efforts would be made to increase household incomes and “vigorously boost consumption.”
“Markets could be encouraged,” said Lynn Song, ING’s chief economist for Greater China. “The call to vigorously boost consumption is a good sign.”