China Key Themes 2025: A policy-driven, half-full glass economy

The year 2025 is the Year of the Snake in Chinese astrology, a symbol of transformation and adaptability—attributes that will be particularly relevant in 2025 for policymakers as they navigate the challenges confronting China’s economy. This year also marks the conclusion of China’s fourteenth five-year plan (2021-2025). For this pivotal year, we have identified three key themes shaping the economic outlook for China:

• Will China fall into a deflationary spiral? Deflationary risks are the biggest concern for Chinese economy in 2025. Unlike the period during 2012-2015 when China faced downward pressure on domestic prices which were predominately driven by supply-side factors, the current anaemic inflation outlook appears to stem largely from weak domestic demand, although supply-side risks are building. How will these dynamics shape the economy in the coming year?
• Can the Chinese government orchestrate a consumption recovery? The revival of Chinese consumers is pivotal to economic recovery. Consumer trade-in programs launched in 2024 appear to effectively stimulate short-term demand. But is this sufficient to drive a significant shift in consumer behavior? What are our expectations for segments outside of these program-affected categories?
• How will China’s fiscal and monetary policies evolve in 2025? We expect China to provide additional rate cuts and adopt an expansionary fiscal policy in 2025 to generate short-term demand. However, will these measures be sufficient to address structural weaknesses on both the supply and demand sides? Notably, what are the prospects for China’s property and manufacturing sectors in 2025?

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