China Government Work Report – Stability with gradual rebalancing underway
Peiqian Liu
China’s latest Government Work Report delivered few surprises. Most quantitative targets aligned closely with market expectations, reinforcing a message of policy continuity: stable growth, calibrated adjustment, and incremental easing rather than large-scale stimulus. The real GDP target has been adjusted to 4.5–5%, compared with “around 5%” in the prior two years, reflecting a more realistic assessment of structural headwinds and softer external demand.
The inflation target remains unchanged at 2%, signalling confidence that price pressures will stay contained. This reflects the economy’s bifurcated dynamics where pockets of resilience coexist with areas of softness. Policymakers appear comfortable maintaining price stability while supporting moderate growth. Labour market targets remain steady, with 12 million new urban jobs and a surveyed unemployment rate of 5.5%. Employment stability continues to serve as the primary social and macroeconomic anchor.”
Anchoring stability and prioritising rebalancing
The overarching theme is economic rebalancing. Policymakers are placing greater emphasis on domestic demand – both investment and consumption – as external demand becomes more uncertain and the supply-led growth model shows diminishing returns. After several years of leaning heavily on industrial capacity and export strength, authorities appear intent on gradually shifting the growth engine inward.
However, this transition remains measured. The policy mix still favours investment and corporate sectors, even as official rhetoric highlights support for households. Technology, innovation, and new growth drivers continue to anchor long-term strategy, reflecting Beijing’s structural focus on upgrading productive capacity and industrial competitiveness.
The fiscal stance remains expansionary but measured. The official budget deficit is maintained at 4% of GDP, signalling a structurally wider central government role in supporting growth. Ultra-long central government bond issuance will remain elevated at RMB 1.3 trillion, consistent with the shift toward longer-duration funding and central balance sheet utilisation.
While boosting consumption is a stated objective, the approach is restrained. Support measures appear directed toward employment stability and wage growth rather than large-scale direct transfers. Household policies are likely to focus on targeted groups rather than broad-based fiscal expansion. This underscores both fiscal constraints and a preference for structural, supply-side measures over demand-driven stimulus.”
External Risks and Policy Flexibility
The conflict in the Middle East is unlikely to materially alter China’s domestic growth trajectory, given contained spillovers so far. However, policymakers have signalled greater flexibility in both policy calibration and growth targets, reflecting a precautionary stance amid rising external uncertainties and potential volatility in global energy and financial markets.
The report contains early signals of tax reform, including commitments to expand revenue sources and increase the tax-to-GDP ratio. This suggests a gradual shift away from property-related financing models that have underpinned local government revenues in recent years. The adjustment reflects both structural necessity and the cooling of the real estate sector.
Given the overall fiscal impulse, the burden of additional easing is likely to fall more on the central government. Incremental fiscal expansion in coming quarters remains possible, but large-scale stimulus appears unlikely at this stage.
By Peiqian Liu, Asia economist
