China’s Quest to Revive Economic Growth Amid Global Challenges

1. A Gathering of Leaders and Uncertain Futures

China’s largest political event of the year, the National People’s Congress, concluded on Tuesday, leaving a critical question unanswered: How far is China willing to go to reignite economic growth by 2025? The week-long gathering of nearly 3,000 delegates emphasized the urgent need to boost investment and consumption. However, the extent to which these ambitions will translate into concrete actions remains unclear. The ruling Communist Party must balance competing priorities while navigating an uncertain economic landscape, compounded by a simmering trade war with the United States. The closing session was notably absent of top leader Zhao Leji, who was sidelined due to a respiratory infection, with Vice Chairman Li Hongzhong stepping in to chair the meeting.

The Congress approve year’s government work report with a near-unanimous vote of 2,882 in favor, one against, and one abstention. Similar overwhelming support was seen for the budget and amendments to laws on congressional deputies. The decisions underscore the urgent need to address the challenges facing the world’s second-largest economy, which continues to grapple with a prolonged property crisis and waning consumer confidence.

2. Economic Growth Targets and Stimulus Measures

The Congress opened with the announcement of an ambitious economic growth target of “about 5%” for this year, a goal analysts deemed challenging given the measures outlined. China plans to ramp up borrowing to fund various initiatives, including a $41.3 billion rebate program to encourage consumers to trade in old cars and appliances for new ones. However, a significant portion of the borrowed funds will be allocated to stabilizing the housing market and supporting debt-laden local governments.

The substantial increase in the budget deficit has raised questions about its impact on domestic demand. Jeremy Zook, lead China analyst for Fitch Ratings, noted that it remains unclear whether these measures will provide the necessary stimulus to reignite growth. The ambitious 5% growth target suggests that additional stimulus measures may be in the pipeline, similar to the surprise moves taken last September to push growth. Finance Minister Lan Fo’an assured that the government has ample tools to address both domestic and external uncertainties.

3. Reviving the Private Sector

Chinese President Xi Jinping appears determined to revitalize the private sector, which plays a crucial role in driving growth and employment despite the economy’s state-dominated structure. Years of regulatory crackdowns have shaken investor confidence, prompting calls for a friendlier environment for private businesses. During the Congress, a proposed law aimed at improving market access, financing, competition, and property rights protection for private enterprises was reviewed but not voted on.

Analysts say Xi’s push for private sector growth is a strategic move to send a clear message to entrepreneurs, local governments, and regulators about the importance of fostering a vibrant private sector. Premier Li Qiang announced plans to increase access to loans for private companies and expand bond issuance for private businesses. These measures aim to restore confidence and encourage innovation and investment.

4. Trade Tensions with the United States

The escalating trade war with the United States looms large over China’s economic outlook. While China has diversified its export markets in recent years, the U.S. remains a vital trading partner. The broader concern, however, is not just the tariffs but the overall health of the U.S. economy and demand for Chinese goods. Alicia Garcia Herrero of Natixis investment bank warned that a decline in U.S. demand could have far-reaching consequences for China’s exports.

President Trump has already raised tariffs on Chinese imports twice since taking office, and China has shown no signs of backing down. Commerce Minister Wang Wentao vowed to “fight to the end” if the U.S. continues its protectionist policies. Foreign Minister Wang Yi criticized Trump’s “America First” approach, cautioning that a global economy governed by the “law of the jungle” would harm everyone. He emphasized the need for major powers to uphold international obligations and avoid bullying weaker nations.

5. Addressing Internal Challenges: The Problem of “Involution”

A familiar buzzword has resurfaced in China’s policy discussions: “neijuan,” or “involution,” a term originally used to describe the cutthroat competition and burnout among younger workers. Today, the government is applying the concept to companies and local governments, where unchecked competition has led to market imbalances. For instance, the proliferation of green energy firms, encouraged by government subsidies, has resulted in oversupply and price wars that harm the industry’s long-term health.

The government acknowledges the problem but has yet to outline clear solutions. Lei Jun, CEO of Xiaomi and a delegate to the Congress, noted that similar strategies among companies lead to fierce competition that ultimately undermines the sector. While government subsidies have fueled growth, they have also created an environment where too many startups chase limited opportunities, leading to inefficiencies. Experts warn that without structural reforms, the problem of “involution” will persist, stifling innovation and sustainability.

6. The Road Ahead: Uncertainties and Opportunities

As China’s National People’s Congress concludes, the path forward remains uncertain. The world’s second-largest economy faces significant challenges, from reviving domestic demand and stabilizing the property market to navigating a fraught trade relationship with the United States. While the government has signaled its intent to support growth and private enterprise, the effectiveness of its measures will only become clear in the months ahead.

The private sector, a critical driver of innovation and job creation, will be a key focus for the government’s efforts to restore confidence and stimulate investment. Meanwhile, the trade war with the U.S. remains a wildcard, with broader implications for global markets and supply chains. As China charts its course, the ability of its leaders