(Bloomberg) -- China’s gross domestic product is expected to expand around 5% for the full year of 2024, President Xi Jinping said, signaling the world’s second-largest economy is on track to meet its official target.
China’s economy was “overall stable and progressing amid stability,” Xi said at a new year event on Tuesday, according to a speech published by the official Xinhua News Agency. Risks in key areas were effectively addressed, while employment and prices remained steady, he said.
While a precise figure won’t be available until next month, the Chinese leader’s disclosure capped off a year of economic uncertainty, with the growth goal initially seen as a “target without a plan.” The outlook for 2024 improved after policymakers rolled out a slew of stimulus steps since late September, with economists now forecasting an expansion of 4.8% this year.
Xi signaled that support for the economy will continue into 2025 during the New Year’s Eve remarks to the nation’s top political advisory body, reiterating a call to adopt more proactive macroeconomic policies.
Later in the day in another new year address televised nationally, Xi acknowledged challenges facing China’s economy, including external uncertainties and shifting to new growth drivers, but called on the nation to remain confident in overcoming them.
“In 2025, we will fully complete the 14th Five-Year Plan, implement more proactive and effective policies,” Xi said. “As always, we grow in wind and rain, and we get stronger through hard times. We must be full of confidence.”
As in previous years, Xi also used his speech to reiterate the ruling Communist Party’s position on Taiwan. “No one can ever stop China’s reunification,” he said, alluding to Beijing’s longtime vow to bring the self-ruled island under its control, by force if necessary.
Weak Demand
China is expected to set a 2025 growth target roughly similar to this year’s, as top leaders signaled earlier this month they’re willing to embrace more forceful stimulus measures. That would help the economy counter any impact from potential increases in US tariffs after President-elect Donald Trump returns to the White House next month.
An official GDP growth target would only be revealed in March, when annual legislative sessions are held. Chinese leaders plan to set an annual growth goal of about 5% for next year, Reuters reported earlier. Economists surveyed by Bloomberg estimate 4.5% growth in 2025.
Officials at key meetings in December pledged to use greater public borrowing and spending as well as monetary easing to spur growth in 2025, in an unusually direct call that sought to boost confidence. They endorsed the first shift in monetary policy stance in 14 years to a “moderately loose” one.
But the economy is still weighed by weak domestic demand and an uncertain outlook for exports, which has been a key growth driver this year. Deflation is likely to persist well into next year, while the property market is still slumping.
Beijing’s initial stimulus next year is expected to fall short of the kind of radical action analysts believe is required to stem the downward spiral in prices, but officials may step up support later when growth falters just as they did this year.
Previously, Premier Li Qiang also revealed the nation’s growth rate ahead of an official announcement by the statistics bureau in a step to lift sentiment. He said the economy grew 5.2% in 2023 in Davos last January, while highlighting the fact that China did not resort to massive stimulus.
Monetary Easing
China’s next easing step could come from the People’s Bank of China, which has yet to provide a liquidity boost to markets by cutting the amount of cash banks must hold in reserves — a move it previously flagged as possible by the end of 2024.
PBOC Governor Pan Gongsheng in October said the central bank may lower the reverse requirement ratio by 25 to 50 basis points depending on liquidity conditions by the year’s end. China’s top leaders at a key economic meeting in December also vowed to trim the RRR at an “appropriate time,” without providing more details.
The PBOC’s decision likely took into consideration the need to stabilize the yuan. High-profile easing measures like a RRR cut could add to depreciation pressure on the yuan. That’s because it would worsen yuan assets’ yield disadvantage compared with dollar assets, triggering fund outflows. The yuan declined to its one-year low in December.
The central bank likely withheld the RRR cut partly because the Federal Reserve signaled greater caution over how quickly it will lower interest rates, according to Bruce Pang, distinguished senior research fellow at the National Institution for Finance and Development, a think tank. The next window for a RRR cut could be after Trump takes office as US president on Jan. 20, he said.
“The PBOC is preserving policy space to deal with increasing external uncertainties. Injecting too much liquidity could also make it harder to manage the yuan exchange rate and government bond yield,” he said.
Liquidity in the interbank market remains ample for now, in spite of a seasonal rise in cash demand at the year-end period. The cost for top-rated commercial banks to raise funds from other institutions via one-year debt instruments hovered at the lowest since April 2020 at the end of December. Subdued loan demand may leave cash sitting idle in the banking system.
PBOC is likely to lower the RRR in January before the Lunar New Year holiday — which begins Jan. 28 — if it doesn’t cut in December, according to analysts including Liu Yu at Huaxi Securities. Over the next year, the PBOC is expected to provide long-term liquidity by cutting the RRR and buying more government bonds.
--With assistance from Jing Li and Josh Xiao.
(Updates with Xi’s comments from another speech in fifth, sixth and seventh paragraphs)
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