The second global power monopolizes a large part of the investment, business and geopolitical uncertainties in 2025 that, in any case, address a common shadow of doubt: will the asian giant to restore the official rhythm of 5% to its GDP and to consolidate a situation without persistent deflation, credit restrictions due to the consumption blackout and the wave of capital flight in 2024 without causing its finances to collapse? Or, in other words, will the caliber that he has given to his tax bazookaof about $586 billion – the value of the Irish economy – or will it need more budgetary ammunition?
The consensus of market analysts and international observers is inclined to anticipate that Beijing will weigh the timing and volume of its resources, but that it will not skimp on injecting the funds that are necessary. The geopolitical emergency with the Trump 2.0 version seems to advise it. Like the urgency to suture the still battered real estate market, which has been in a state of shock since the Evergrande crisis, which emerged during the summer of 2021 and lasted until its bankruptcy declaration two years later and which coincided with the long year of economic hibernation due to the application of the zero Covid policy in 2022.
These two seismic movements continue to emit aftershocks. Essentially in the form of a deterioration in the lending climate and a rise in debt due to the collusion with the credit risk of state banks in the real estate sector and the involvement of municipalities in housing, without the protective umbrella of Beijing. China also detected its toxic assets among its brick-and-mortar clients, after a decade of intense speculation prior to the Great Pandemic.
Hu Jintao’s Government has deployed the same amount – that just over 4 trillion yuan, 586 billion dollars at the current exchange rate – that it used last year to cushion the flight of investments in its main stock markets in the face of the resurgence of the US vetoes and bans put in place by the Biden Administration. Especially, on the technology and chip business and on the industries protected by Washington’s federal subsidies such as renewable energy or electric vehicles.
“There is an intense debate about whether it can afford to continue spending,” they acknowledge in the Macquarie Group investment fund, from where they calculate that China “will need at least 800,000 million to address the impact of the possible increase in tariffs that it intends to apply.” Trump and stimulate domestic demand at the same time.” The exact terms of the budget will be announced by Finance Minister Lan Fo’an once the levies on import flows of goods and services are revealed. made in china in the US market. “But they will be forceful,” explains Mitul Kotecha, from Barclays, for whom, “until now, Beijing has preferred to keep its powder wet.” In his opinion, “it will have enough room to expand its stimulus program.”
A trade war would reduce dynamism and income
The aggressive trade policy that Trump’s economic team intends to implement seeks, in the case of China, to prevent any attempt to take off its activity through what Biden’s successor understands as strategies of dumping of prices – cheaper goods with the aim of gaining competitiveness and market share – of the greatest power in global trade, which will absorb, according to the IMF, 21% of the planet’s GDP between 2024 and 2029.
Goldman Sachs considers that a smaller increase to the threatening 60% tariff increase issued by the future tenant of the White House during the election campaign, around 20%, would already subtract 0.7% from China’s annual growth rate. . A declaration of trade war with cost overruns of 60% would contract Chinese dynamism by two points in 2025, in addition to putting the 5% annual growth goal in “serious danger.”
In parallel, strengthening this new protective shield would mean for Beijing to skip the commendable budgetary discipline that it has displayed in recent decades. Not to the obsessive level of austericide that Angela Merkel’s Germany instilled during the European debt crisis, but of sufficient magnitude to participate in the phase of fiscal indifference that several industrialized powers and emerging markets intend to extend. “China should preserve its fiscal and monetary arsenal in 2025 to counteract the potential damage from tariff increases” in the Trump 2.0 version, says Chi Lo of BNP Paribas AM. Quite an initial declaration of peace – or so it seems – by the markets to the strategy keynesian of the Asian giant.
During the Great Pandemic, a considerable portion of economic doctrine recalled the fragile conception of the sacrosanct neoliberal principle of 3% of GDP as a limit to keep budget imbalances within orthodoxy. Although its origin was forged in the cabinet of François Mitterrand, specifically, it came from his advisor, Guy Abeille, who confessed that he transferred it to the French socialist president in an improvised manner in response to his request to find a formula that would contain the propensity for excessive spending of his ministers. Any lower point would have been too demanding, he admitted to Le Parisianlong after 1981, when he shared his decision with his head of state.
The tactics of Xi Jinping and his government will once again revolve in 2025, therefore, around the idea of 2020, as a result of the coronavirus crisis, of “applying special measures to face exceptionally serious circumstances.” Of course, also in line with the IMF’s warning to spend at discretion, but keeping the bills in the drawer for later payment. Just as Beijing has done, which has exceeded the fiscal ceiling officially declared in Maastricht for the whole of Europe in three years in the last five years. In 2025, the sixth year after Covid-19, the forecasts, under the resources initially contemplated, indicate that its deficit would reach 4% of its GDP.
But, in addition, the putting into play of fiscal resources will be essential to restore the lost confidence of Chinese households, after years of real estate investments in decline and an export sector no longer as buoyant as the one that shone during the double decade that followed. upon its entry into the WTO – in 2001 – which gave it the label of Great World Factory and that will be threatened by Trump’s trade policy. This January, the state planning agency, in charge of executing the five-year plans, has announced the extension of aid for the renewal of technological equipment to families and companies, for which consumers will be able to receive subsidies of up to 500 yuan (about $68 ) to acquire mobile phones, PCs or tablets and computer equipment from companies. All to boost inflation. Because in China the problem is the absence of any vestige of a price rebound. For two years now.
High caliber fiscal arsenal
Lan Fo’an, its economic architect, highlights that Beijing “has sufficient spending margin.” Although it omits that Chinese national accounting only contemplates public debt, because it does not add three other essential balance sheets, neither those of Social Security, those of state-owned companies, with non-transparent transfers, nor the expenses of the generous infrastructure plans, he warns. Fitch Rating. If included, the fiscal hole in 2024 would have been 7.1% “with almost complete probability.” The IMF even raises it to 13% – with a debt of 129% – if the indebtedness of the “financing vehicles” of local governments were taken into account.
Fitch, one of the three rating agencies that make up the triumvirate of risk rating agencies, insists that over-indebtedness in China is “high” in the medium term and could double the average of markets to which it has been assigned the A credit grade, such as to the Asian giant. Largely, due to the erosion of income which, as Jeremy Zook, its director for Asia, points out, was already weakened before the Great Pandemic, going from 30% of GDP in 2018 to 23% in 2024. Even so , Zook considers Chinese fiscal stimulus a priority to revive household spending, light the fuse of prices and contain Trump’s tariff attacks. Hinting that the consolidation of the accounts may still take some time.
Beijing plans to reserve fiscal ammunition for the second trade war. Possibly, if the greatest of the tariff threats takes effect trumpiststo be used from March, when the budget is announced and the official growth objective is defined, explains The Economist or if the dynamism continues below 5% like much of the last biennium. Goldman Sachs advances it this way. “China will grow at a slower pace in 2025,” after last year’s growth rate reached 4.9%. Of course, with some inflation, although just 8 tenths that Bloomberg experts raise to 1.2%.
While Julieta Contreras, from the Peterson Institute for International Economic, warns that a 60% tariff on China would mean a “shock to international goods markets,” she remembers that between 2018 and 2019 the tariff battle between the two superpowers caused an average increase of 16% on 62% of US imports and warns that “no commercial tax is free”, not even for an inflation that is still not adjusted and that It will make electronic, automotive or chemical supplies, among others, even more expensive. To the chagrin of the Fed’s expansionary policy, American industry and a fiscal balance that the Trump Administration begins far from orthodoxy – 7.5% of GDP – and with no signs of consolidation due to tariff increases and tax cuts .
But also from China, which, according to Frederic Neumann of HSBC, “needs stimulus everywhere to alleviate the trade war and contain a rampant deflation unknown since the time of Mao.”
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