China 2025 Outlook_ Leaning Against the Wind

Economic Growth and Policy - China's real GDP growth is expected to decelerate from 4.9% in 2024 to 4.5% in 2025 due to increased US tariffs and domestic challenges[7][8] - Policymakers are anticipated to cut policy rates by 40bp and expand the augmented fiscal deficit by 1.8pp of GDP in 2025[7] - The property sector is projected to weigh on GDP growth by 2.0pp in 2025, continuing its multi-year drag[40] Trade and Tariffs - US effective tariff rate on Chinese goods is expected to increase by 20pp, reducing China's real GDP by 0.7pp in 2025[7][9] - Chinese exports to the US are likely to decline significantly, while exports to other countries may increase modestly, keeping total goods export volume flat[50][54] Inflation and Consumption - CPI and PPI inflation are forecasted to be 0.8% and 0% respectively in 2025, below consensus expectations[14][69] - Household consumption growth is expected to remain flat at 5.0% in 2025, supported by ongoing subsidy programs but weighed down by declining house prices[21][22] Labor Market and Wages - Youth unemployment reached 18.8% in August 2024, reflecting weak labor market conditions[27] - Urban wage growth slowed to 2.6% in Q3 2024, with expectations of modest improvement in 2025[31][32] Fiscal and Monetary Policy - The augmented fiscal deficit is expected to widen by 1.8pp of GDP to 13.0% in 2025, driven by increased local government special bond issuance[80] - The PBOC is likely to cut the 7-day OMO rate to 1.1% by end-2025, with additional RRR cuts expected to support fiscal expansion[109] Property Market - New home starts and government land sales revenue have declined by more than 70% and 60% respectively since the 2020-21 peak[34] - Recent housing easing measures may stabilize home prices in some large cities, but the nationwide property downturn is expected to persist[39][40]