Analysis: Nine Key Messages from Chinese Premier’s Work Report
By Luo Zhiheng
As China’s top legislature convened for its annual session, Premier Li Qiang presented the Government Work Report, outlining economic goals and policy priorities for the year ahead.
The report noted that the external environment has grown more complex and challenging, while the domestic economic recovery remains fragile, creating a landscape of strategic opportunities coexisting alongside risks and uncertainties.
Against this backdrop, the government introduced several new measures in this year’s work agenda. It retained the GDP growth target at around 5% for the third year but raised the deficit-to-GDP ratio to a record 4%. It lowered the inflation target to around 2% for the first time, signaling a more proactive fiscal policy and a stronger focus on price stability.
The report highlights nine key messages, emphasizing efforts to stabilize growth, manage risks and drive long-term development.
1. Sustaining economic recovery and growth
The term “development” appeared 141 times in this year’s report, making it the most frequently mentioned word and highlighting its continued priority.
The report acknowledged challenges from both the external environment and domestic economic recovery. However, it also emphasized China’s institutional, market, industrial and talent advantages. The report underscored the importance of crafting policies that outpace uncertainty, actively listening to market feedback, and improving expectation management.
2. Stabilizing growth and managing price levels
The GDP growth target of around 5% aligns with market expectations, reflecting a proactive and determined policy approach. To address challenges facing the Chinese economy, short-term policies will retain a pro-growth stance, while medium- to long-term strategies will focus on balancing security and development. Measures include fostering technological self-reliance, institutional innovation, opening the services sector to boost market vitality and stimulating consumption to achieve supply-demand balance.
The government adjusted the growth target for the Consumer Price Index (CPI) in 2025 to “around 2%” from the previous “around 3%”, emphasizing that policies and reforms will improve supply-demand dynamics to stabilize prices within a reasonable range. This adjustment aims to support a moderate price rebound, raise nominal growth rates, narrow the gap between macro data and micro-level perceptions and strengthen market confidence and expectations.
3. A more proactive fiscal policy with a record-high budget deficit ratio
This year’s fiscal policy is more proactive than last year’s, marked by greater intensity, faster implementation, diversified measures and improved structural efficiency. It emphasizes reforms in the fiscal and tax systems, including zero-based budgeting, consumption tax adjustments and standardized tax incentives, alongside stronger fiscal support for high-quality development and efforts to address local government debt risks.
The strengthening of fiscal policy signals a major shift in fiscal strategy. Development has been prioritized, with more aggressive policies aimed at accelerating economic growth. The focus has moved from short-term fiscal balance to ensuring medium- and long-term economic and social stability, enabling fiscal policy to better support high-quality development. Additionally, the traditional 3% deficit ratio limit has been set aside, allowing more flexible and adaptive macroeconomic management. This approach reflects a more pragmatic response to economic challenges.
4. Easing monetary policy with further rate cuts on horizon
Persistently low price levels and high real interest rates continue to weigh on household consumption and corporate investment. To address this, further cuts to the reserve requirement ratio (RRR) and interest rates are expected, with both projected to drop by 0.5 percentage points over the year. RRR cuts will probably come first, followed by adjustments to policy rates, guiding symmetric declines in the Loan Prime Rate (LPR) and deposit rates while safeguarding banks’ net interest margins.
Structural tools will play a more targeted role. Existing relending facilities have already supported key areas such as real estate and capital markets. In future, efforts will focus on encouraging commercial banks to expand credit for sectors such as technology and elderly care, implement loan renewal policies and strengthen financing guarantees and risk-sharing mechanisms. Relending facilities for technological innovation, equipment upgrades and inclusive elderly care will be fully utilized to maximize their impact.
5. Making domestic demand the primary driver and stabilizing anchor of economic growth
The report pledges measures to boost domestic consumption by enhancing purchasing power, improving the quality of supply and creating a more favorable consumption environment.
Consumption growth hinges on three factors: purchasing power, willingness to spend and supply suitability. To strengthen these, the government should focus on fiscal support, such as subsidies, to boost household purchasing power and encourage spending. Targeted assistance for vulnerable groups — the unemployed graduates, rural elderly and families with two or more children — can improve financial resilience and stimulate consumption. Additionally, income distribution reforms, including tax adjustments, increased transfer payments, enhanced social security and accelerated rural land reforms, are critical to raising incomes for middle- and low-income households.
The government will need to accelerate household registration reforms to integrate migrant workers into urban areas, managing their expectations and increasing their readiness to spend. On the supply side, efforts are needed to focus on expanding high-end manufacturing to improve the quality of goods and better meet consumer demand. Finally, the service sector needs to be opened further in areas such as tourism, healthcare, elderly care and domestic services, to unlock full consumption potential.
6. Further efforts to stabilize the property market and mitigate risks of developer debt defaults
Stabilizing the real estate market is a top priority for ensuring economic and financial stability in 2025.
While previous policy adjustments have sparked signs of recovery, challenges remain. Housing prices nationwide have yet to stabilize, and the risk of developer debt defaults persists. To address these issues, real estate policies can be improved and optimized in three areas. First, home purchase restrictions, particularly in cities such as Beijing and Shanghai, should be lifted to allow commercial housing to operate under market-driven mechanisms. Second, the establishment of a national real estate stabilization fund could help ensure the delivery of pre-sold homes, support governments’ buying of excess housing inventory, and unused land from developers. Third, encouraging the development of high-quality residential projects to better meet a growing demand for improved housing options.
7. Capital market reforms to stabilize the stock market
The report calls for deepening capital market reforms in investment and financing, actively encouraging medium- and long-term funds to enter the market and strengthening strategic reserves and market stabilization mechanisms.
In 2025, capital market reforms will focus on four main priorities. First, efforts will continue to encourage long-term funds, such as insurance funds, pension funds, corporate annuities, and individual pensions, to enter the market.
Second, research and preparations for establishing a stabilization fund will be intensified, in order to supplement policy tools for market stability. Drawing on international experience, such funds typically range between 2% and 6% of market capitalization. Given China’s combined stock market valuation of around 100 trillion yuan, a stabilization fund of 2 trillion to 6 trillion yuan ($275 billion to $825 billion) would be appropriate.
Third, reforms will optimize listing and financing systems to support high-quality tech companies in going public.
Fourth, resource integration will be enhanced to drive mergers and acquisitions, fostering a more dynamic and efficient market.
8. Strengthening supports to the private sector
In 2025, policies to support the private economy are expected to focus on five areas:
Accelerated legislation: The Private Economy Promotion Law, undergoing its second review in early 2025, will formalize major policies and measures into legal frameworks.
Fair law enforcement: Efforts will standardize business-related law enforcement, cracking down on arbitrary fees, fines, and inspections, while addressing unpaid debts to enterprises through tools like local government special bonds.
Market access reforms: Barriers to market entry will be further dismantled, ensuring a fairer competitive environment for private enterprises.
Expanded financing: Banks will be encouraged to direct credit toward private enterprises, particularly for innovation, while bond financing support tools will be strengthened to help private firms raise funds through public markets.
Improved public perception: Actions stigmatizing the private economy will be addressed, and wrongful cases involving private entities will be corrected to reinforce judicial fairness and public confidence.
9. Advancing industrial systems
The report outlines key industrial priorities for 2025, focusing on advancing the digital economy to capitalize on artificial intelligence, commercial aerospace and the low-altitude economy. It stresses advancements in cutting-edge fields such as biomanufacturing, quantum technology, embodied intelligence and 6G, while upgrading traditional industries to enhance their competitiveness.
In 2025, three policy directions will drive the development of related industries:
Expanding demand: Launch flagship products such as humanoid robots, quantum computers and ultra-high-speed trains to spur demand in strategic emerging and future industries. Broaden application scenarios to further stimulate growth.
Optimizing supply: Address overcapacity and vicious competition by tailoring supply-side reforms to the technological development patterns of different industries.
Comprehensive support: accelerating data circulation and standardizing its use, which includes increasing government data openness while ensuring security and improving systems for data ownership and trading; expanding “patient capital” and encouraging venture capital by relaxing investment restrictions and providing smoother exits for investors; and cultivating talent that aligns with the demands of new productive forces to drive long-term innovation.
Luo Zhiheng is chief economist at Yuekai Securities Co. Ltd.
This article has been edited for length and clarity.
Contact editor Han Wei (weihan@caixin.com)
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