Market Views: Will China announce more stimulus in 2025?
China's National People's Congress (NPC) meeting last week failed to deliver the immediate fiscal stimulus that investors were expecting. So will such measures be forthcoming over the next 12 months?
Markets were left underwhelmed by China's National People's Congress (NPC) meeting from November 4 to 8, which failed to introduce the substantial fiscal stimulus measures many had anticipated.
During the meeting, officials announced a Rmb10 trillion ($1.4 trillion) debt package designed to alleviate local government debt burdens, primarily through debt swaps.
The NPC approved raising the local government debt ceiling by Rmb6 trillion ($829 billion) to replace existing hidden debts.
Looking ahead over the next 12 months, analysts and investment managers anticipate additional stimulus measures, as Beijing continues to face challenges in reviving economic growth and the renewed threat of a trade war following Donald Trump's decisive victory in the US elections.
Investors will likely be watching both the upcoming Central Economic Work Conference at the end of this year and China's Two Sessions in March 2025 for any indications of further support for consumer spending and the troubled property sector.
We asked asset managers and market experts to weigh in on two critical issues: the impact of the NPC's debt-focused approach on Chinese equities, and the outlook for additional stimulus measures in 2025.
The following responses have been edited for clarity and brevity.
Vivian Lin Thurston, partner and portfolio manager for emerging markets growth
William Blair
Vivian Lin Thurston
In our opinion, the direct implications for China equities are limited given that there isn’t net new debt or new fiscal spending from the debt swap program.
The debt swap would likely help local governments maintain their solvency and reduce certain interest expenses in the short term, which could marginally improve the local government’s fiscal ability to stimulate the local economy when needed.
In the meantime, SOE banks’ balance sheets could improve to some extent as a result of the debt swap, which may lead to better financial performance of these banks. China equities would benefit if there were net new fiscal spending to support the economy.
In the meantime, SOE banks’ balance sheets could improve to some extent as a result of the debt swap, which may lead to better financial performance of these banks. China equities would benefit if there were net new fiscal spending to support the economy.
We believe that the market continues to expect further fiscal stimulus to come through in 2025, which was also hinted by the Chinese government. However, the magnitude, timing and details of the stimulus are difficult to predict at this point.
The next event to watch is the Central Economic Work Conference, which normally takes place in December.
The next event to watch is the Central Economic Work Conference, which normally takes place in December.
Nicholas Yeo, head of China equities
abrdn
Nicholas Yeo
Reducing the debt burden for local governments is crucial to prevent them from seeking income from various sources to meet their payment obligations, which would otherwise hinder development and consumer wellbeing.
Direct policies to boost consumption and support for the property sector would likely be delayed to the Central Economic Work Conference in December or the “Two Sessions” in March.
This timeline would allow the central government to gauge the impact of Trump’s first 100 days in office, particularly regarding tariffs.
We anticipate more fiscal support and structural reforms to come through in 2025, as failing to provide additional stimulus could harm China’s policy credibility and risk a deflationary loop.
We remain cautiously optimistic about the outlook this time around. Chinese equities are attractively valued, have lower correlation to global macro trends, and benefit from strong domestic policy tailwinds.
Any major pullback in the market due to US tariff uncertainties would be a good time to add to China as we believe there is scope for idiosyncratic positive returns versus other markets. Moreover, low positioning further enhances the potential scope for a prolonged re-rating.
Jie Lu, head of investments, China
Robeco
Jie Lu
The December 2024 Politburo, December Central Economic Work Conference, and March 2025 NPC will provide more indications and details on the fiscal budget for both official and augmented fiscal deficit forecasts in light of the potential risks from Trade War 2.0.
We remain constructive on Chinese equities and have maintained our barbell strategy, which includes a balance between cyclical value stocks and long-term structural winners.
On the one hand, we focus on names with cheaper valuations, such as domestic consumption recovery and dividend plays; on the other hand, we are adding stocks benefiting from technology innovation and industrial upgrades. Bottom-up stock picking is key.
After Trade War 1.0, China's exports became less reliant on the U.S., and the country is now better prepared for potential fallout.
As a result, China may not act pre-emptively; instead, it might adopt a pragmatic, tit-for-tat approach and determine the scale of any stimulus based on the actual tariffs imposed and, equally importantly, how the domestic property market can stabilise.
These factors contribute to short-term volatility, but in the long run, domestic consumption and technological self-reliance will be key to mitigating the impact of Trade War 2.0.
Chaoping Zhu, global market strategist
JP Morgan Asset Management
Chaoping Zhu
The measures announced after the recent meeting of China's National People's Congress Standing Committee reflect a cautious and calculated approach to managing the country's economic challenges.
In the broader context, this cautious approach may signal the government's intent to prioritise sustainable economic growth over short-term stimulus.
While the market may have to wait for more substantial policy changes, the potential for future monetary and fiscal measures remains.
Factors such as a deep stock market correction, export headwinds, or mounting fiscal pressures on local governments could serve as catalysts for policy escalation.
We still see potential in Chinese stocks, supported by attractive valuations and substantial household savings of Rmb149 trillion.
As confidence builds and appropriate policy measures are implemented, the long-term outlook for China's economy remains promising.
While the fiscal strategy may not have met market expectations for aggressive stimulus, it represents a balanced approach to managing local government debt and ensuring sustainable economic growth.
Chi Lo, senior market strategist, Asia Pacific
BNP Paribas Asset Management
Chi Lo
The large stimulus package announced in September and follow-up measures have reduced the downside risk to the 5.0% official growth target for this year.
While more easing efforts are needed, Beijing is in no hurry to respond to the US election. It will likely conserve its economic firepower for next year to counteract the potential damages from the expected sharp increase in tariffs by the new US administration on imports from China.
While the debt-swap is not a direct demand stimulus, it will serve to alleviate the local governments’ debt overhang and, thus, help prevent deflationary pressures from worsening.
All this will indirectly help improve consumer confidence and spending and stabilise the property market by reducing the need for the local governments to sell property projects at fire sale prices to repay their debts.
Christy Tan, investment strategist
Franklin Templeton Institute
Christy Tan
China’s pro-growth strategy may take time to fully materialise, but the first move—a significant Rmb10 trillion commitment—is substantial.
Finance Minister Lan has promised an even stronger fiscal approach next year, signalling a potential increase in the fiscal deficit.
The near-term goal is to achieve 5% growth in the final quarter of 2024, setting the stage for a similar target in 2025 and beyond.
Future policies will likely be multi-faceted, emphasising expansionary fiscal measures that boost domestic consumption and reinforce long-term income expectations.
Beyond addressing local government debt, the fiscal plan is expected to extend support to sectors like property, technology, and bank recapitalisation.
Should Trump impose a 60% tariff on all Chinese exports, the economic impact could be severe, potentially reducing China’s GDP by as much as 2%.
However, Trump’s tendency toward deal-making may ultimately soften this impact, perhaps reducing tariffs to the 10-20% range, which could lower the GDP impact to around 0.5%.
The upcoming year-end Politburo meeting and December’s Central Economic Work Conference will provide a critical window to assess US election implications on China’s 2025 goals. Concrete plans for increased government spending will await the National People’s Congress meeting in March.
Aninda Mitra, head of Asia macro and investment strategy
BNY Advisors Investment Institute
Aninda Mitra
China’s decision to focus on balance sheet cleanup at its local governments highlights a more patient and heterodox approach to grappling with the ongoing slowdown as well as anticipated tariffs from the incoming Trump administration.
Our main takeaway is that the authorities have learnt from the experience of the first trade war. They seem more inclined to pursue a proactive approach to weakening the currency and re-routing exports to avoid a buildup of financial pressure.
Fiscal policy will likely be used more reactively once the new US administration’s policies become clearer to keep growth from drifting too far below a baseline (or the new target for 2025).
Recent stimulus measures since late September and the debt swap announcement take out left-tail (very adverse) macro risks. But they do not yet lend a whole lot more upside to the growth outlook. Nor do they reassure us about an imminent end to economy-wide deflation.
We remain cautious on emerging markets, including Chinese equities. But we do believe that more forceful stimulus from Beijing twinned with a compositional change toward boosting domestic consumption is still in the offing. This is needed to curb deflation and to strengthen new drivers of growth.
We would await this policy shift and any further correction in underlying valuations to raise exposure in 2025.
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