Private sector to get more support

The government's growth and fiscal deficit targets for 2025 are broadly in line with market expectations. The government maintained a 5 percent real GDP growth target despite headwinds from US tariffs. According to Premier Li Qiang, a 5 percent growth target is not only necessary for ensuring stable employment and preventing risks, it is backed by China's growth potential and aligns with the government's medium- and long-term objectives. It is a challenging goal that the government will strive to achieve. Fiscal deficit is set at 4 percent of GDP, the highest in decades and breaching a long-standing 3 percent deficit ceiling.

We are encouraged by the government's new 2 percent consumer inflation target. Although lower than the 3 percent in earlier years, the government has attached a new meaning to it. At a press conference, a government official explained that the new inflation target is "a proactive signal with a clearer policy message": the government will "strengthen the guiding role of price indicators" and "make all efforts to promote a moderate rebound in prices". We think this means the government has moved away from the previous approach of setting an inflation ceiling toward a formal 2 percent inflation target, which demonstrates its commitment to preventing deflation.

Swift and coordinated implementation policies is stressed. A new emphasis from the work plan is that policies should be enacted "as early as possible to preempt uncertainties" and should be "fully implemented in one go" to maximize its effectiveness. The work plan also stressed on the need to pay attention to market feedback and foster positive expectations. These statements seem to suggest the government has reflected on lessons from the past. The market will likely welcome it if the government can deliver its supportive policies in a timely and coordinated manner this year, instead of a gradual/piecemeal approach in recent years.

Consumption ranked first among the government's priorities. The government will promote an "AI plus" initiative to accelerate the extensive application of large language models, enabling AI to empower all industries from traditional manufacturing to emerging services sectors.

The government is turning more supportive of the private sector, proposing a number of policy measures. For the stock market, a few policies are worth highlighting: the government will forcefully promote long-term funding flows, such as from insurance companies and pension funds, into the stock market; it will enhance "market stabilization mechanisms" which could include stabilization funds; and the government will curb "involutionary competition" and price wars, which, if implemented effectively, could benefit industries with thin profit margins such as solar and autos.

Xiong Yi, Deutsche Bank's chief China economist.