China has set itself a familiar target for 2025: around 5% economic growth. The harder part is achieving it without relying too heavily on exports and government spending.
On March 5, China announced its annual growth target at roughly 5%, unchanged from 2024. At the same time, Beijing raised its budget-deficit target to 4% of GDP, up from 3% last year, signalling a stronger willingness to use fiscal policy to support the economy. The government also lowered its inflation target from 3% to 2%.
The combination tells us something important about the world's second-largest economy.
China is no longer primarily fighting overheating. It is fighting weak demand.
The property-sector downturn has damaged household wealth, while weak consumer confidence has made households reluctant to spend. Deflationary pressure has also become a concern. Beijing therefore wants fiscal policy to do more of the work.
That creates a problem.
Government spending can support GDP in the short run, but it cannot permanently replace household consumption. If businesses build factories and infrastructure while consumers remain cautious, the economy can produce more without necessarily generating enough domestic demand to absorb that output.
Exports provide another outlet, but that route is becoming more difficult.
The United States has already imposed additional tariffs on Chinese goods, with further trade restrictions threatening one of China's most important external markets. Other economies are also increasingly concerned about China's industrial overcapacity.
That makes the 5% target less straightforward than it looks.
China can increase spending. It can support manufacturers. It can provide incentives for consumers. But the deeper challenge is convincing households that it is safe to spend again.
There is another number worth watching: the 4% fiscal deficit target. Beijing is effectively accepting a larger government role in supporting growth, giving policymakers more room to respond if domestic demand remains weak.
For global markets, China's success matters far beyond China.
A stronger Chinese consumer means more demand for commodities, luxury goods, tourism and imports. A weaker Chinese consumer could mean more Chinese firms competing for foreign markets through exports.
China has bought itself more fiscal room in 2025. The real question is whether Beijing can turn that government spending into something more difficult to manufacture: consumer confidence.
