Xi Jinping's Communist Party has shifted its economic focus toward boosting domestic demand, in a work report released this week that highlights the shift in priority from investment in technology and industry that has helped China become a export power.
Coming out of their annual economic conference, party leaders spoke of the need for vigorous efforts to boost consumption and domestic demand in all directions, promising to finance this by increasing China's budget deficit.
By emphasizing consumption as the first of nine economic priorities for 2025, beyond Xi's previous strategic goals, such as investment in so-called new productive forces, they gave a clear indication of the Beijing's concerns about growth next year.
The focus on consumption is a better-case scenario for how the conference might have gone in terms of the macroeconomic signals it would send, said Neil Thomas, a researcher at Asia's China Analysis Center Society Policy Institutes.
Xi is not abandoning his other economic and political goals, but I think he realizes that he must maintain a foundation of economic growth to ensure that his broader agenda of national rejuvenation can continue to advance.
China's economy is grappling with weak domestic demand and deep deflationary pressures following a three-year collapse in the property market that has hit household wealth.
Exports that have fueled the economy are under threat from additional tariffs from new US President Donald Trump.
Still, the lack of details after the two-day meeting known as the Central Economic Work Conference has left markets wondering what vigorously promoting consumption might mean, especially as Party leaders Communists hate Western-style social protection and fiscal stimulus measures.
Details of the measures will likely only be released at the annual meeting of China's parliament in March next year, wrote Ting Lu, Nomura's chief China economist.
Chinese leaders have gradually changed their tone in favor of stimulating consumption. In September, financial regulators announced monetary stimulus measures targeting stocks and real estate. The Finance Ministry followed up with a 10 trillion RMB ($1.4 trillion) debt swap for heavily indebted Chinese local governments.
But much to markets' disappointment, Beijing has yet to announce concerted fiscal stimulus, and China's blue-chip CSI 300 index has fallen nearly 12 percent since its October 8 peak, following the The initial announcement of recovery plans by Beijing.
Meanwhile, the meteoric rise in sovereign bonds continues, pushing the benchmark 10-year yield down to 1.77 percent, a historic low that underlines investors' concerns about growth prospects.
In 2008, China launched a 4 trillion yuan stimulus package that helped pull the global economy out of the slowdown caused by the global financial crisis. But those stimulus measures, which would have to be several times larger today to have the same effect given China's largest economy, have been devoted mainly to large-scale infrastructure projects.
Economists say a similar program would not have as impressive an impact today, given the considerable sums already invested in infrastructure.
They say large-scale investment is needed in areas such as pensions and healthcare, to give households the confidence to be able to consume now, rather than saving for the future.
Chinese households have some of the highest savings rates in the world, partly due to the need to save for health emergencies and the lack of sufficient pensions, economists say.
A government policy adviser told the Financial Times that authorities were likely to consider channeling money to households through measures that could include expanding the coverage of health insurance schemes and their reimbursement levels. Currently, families must pay significant amounts of money out of pocket for chronic health conditions.
The government could also increase funding for education and the number of years of free education, the adviser said.
The working conference report identified these areas as priorities, saying authorities should appropriately increase the basic pension of retirees, increase the basic pension of urban and rural residents, and raise the financial subsidy standards for medical insurance for urban and rural residents.
Overall, economists said they expected more subsidies to upgrade goods such as electronics and vehicles.
Beijing also appears ready to use more monetary levers. Policymakers have set a goal of achieving a reasonable rebound in inflation, noted Tao Wang, chief China economist at UBS, suggesting that more interest rate cuts and monetary easing are probable.
Chinese producers have faced deflationary pressures for two years, as strong competition and weak demand drive down prices.
Goldman Sachs economists predict in a note that the country's budget deficit will increase. Their estimate of the total budget deficit, including central and local governments, would widen by 1.8 percentage points to 13 percent of GDP next year, implying that fiscal policy will do most of the work. to stabilize growth.
Economists at Morgan Stanley said they expected a marginal increase in social spending and warned of trade barriers. They said they would maintain a lower-than-consensus forecast for Chinese nominal GDP growth of 3 percent year-on-year.
Although the party's economic meeting focused on consumption, it offered little new information on the country's housing market crisis, which many economists see as the ultimate source of the crisis of confidence affecting Chinese households.
Thomas, of the Asia Society, said the main focus before the National People's Congress meets in March would be whether the party would turn its recovery promises into action.
They're talking, but the big question is whether they'll take action, Thomas said, warning that Xi's goal would be to try to balance short-term growth stabilization with his economic programs in the long term.
These include reducing debt, improving social stability and ensuring strategic technology goals, Thomas said, areas that are not always positive in terms of growth.
Additional reporting by Wenjie Ding in Beijing
