China’s “Two Sessions”: growth targets, trade, and markets

China’s annual “Two Sessions,” encompassing the National People’s Congress (NPC) and the Chinese People’s Political Consultative Conference (CPPCC), kicked off in Beijing on Wednesday. As broadly expected, Premier Li Qiang reaffirmed the 2025 GDP growth target at “around 5%” while also introducing other growth targets and policy guidelines to counter economic headwinds, including rising trade tensions with the US.

In retaliation for the 10% US tariffs on Chinese imports, Beijing imposed tariffs of between 10% and 15% on US agricultural products and censored dozens of American companies.

“An increasingly complex and severe external environment may exert a greater impact on China in areas such as trade, science, and technology,” highlighted Li in his speech. “Global economic growth lacks steam, unilateralism and protectionism are on the rise, the multilateral trading system is experiencing disruptions, and tariff barriers continue to increase,” the Premier added.

Despite the escalating trade tensions, some investors believe China will take a measured approach. Jie Lu, Head of Investments China at Robeco, expects Beijing to exercise caution in its response to avoid further escalation. “While the risk of intensification in the tariffs and other restrictions is live and significant, the calculation remains that Trump’s approach will be transactional in nature rather than ideological,” he said in an insight.

Lu sees an opportunity for China to engage in dialogue, noting that the share of Chinese exports to the US has already declined from 19% in 2017 to 15% in 2024. He also pointed out that if trade disruptions negatively impact the economy, Beijing still has room to introduce additional stimulus measures.

Matthews Asia’s China strategist Andy Rothman points out that worrying about the weak domestic demand is more important for China than worrying about the US’s tariffs plans.

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“Exports aren’t the future for China. It already has the largest share of global exports and manufacturing, and there is increasing political concern in many countries about this dominance,” Rothman said in a market view.

Instead, Rothman emphasises China’s shift toward domestic consumption, highlighting its position as the world’s second-largest and fastest-growing consumer market. In 2024, services and real estate comprised 57% of GDP, while manufacturing and construction fell to 36% from 47% in 2006.

“When Xi does put the domestic economy back on track, that will outweigh any headwinds from tensions in the U.S.-China relationship,” Rothman opined.

Start to China’s Two Sessions signals greater confidence

China also raised its budget deficit target to 4% of GDP, the highest since 2010, and announced plans to issue 1.3 tn yuan (approx. $179 bn) in special treasury bonds alongside 4.4 tn yuan (approx. $606 bn) in local government bonds.

„These targets imply that we will see a stronger fiscal policy push this year, while still keeping in mind long-term debt sustainability considerations,” commented Lynn Song, Chief Economist, Greater China, at ING.

As he points out, Chinese policy tends to move at an incremental pace. “The key point is that things look to be moving in the right direction, with an increased focus on supporting domestic demand this year. Markets will watch closely to see how fast and how aggressively new policy measures roll out in the coming months,” Song concluded.