China’s Two Sessions meeting has concluded, offering a roadmap for navigating the country’s economic landscape in 2025. While reaffirming a commitment to stable growth, the policy agenda outlined during the sessions reveals a focus on balancing competing priorities, including:
- Stimulating domestic consumption to offset a probable weakening in exports;
- Managing financial risks;
- And pursuing strategic investments in key sectors.
This Insight delves into the key takeaways from China’s Two Sessions, analysing the implications for various sectors, including China’s metals and energy markets.
Key announcements at a glance
The 2025 Government Work Report (GWR) unveiled a series of key policy announcements aimed at guiding China’s economic trajectory (see table below). The GWR, largely aligning with our expectations, emphasised a commitment to achieving a real GDP growth target of around 5%, and lowered the inflation target to 2%. A lower inflation target is not surprising, given inflation has been far below the 3% target for several years.
The ongoing commitment to “high-quality” growth underscores the government’s focus on tackling significant economic challenges, such as weak consumer confidence, the struggling property sector, persistent deflationary pressures and potential global headwinds. In the face of these challenges, the government has signalled a willingness to dynamically adjust policies, indicating a flexible approach. Considering China’s history of achieving its growth targets (see chart below), our February Global Economic Outlook forecast of 4.6% GDP growth in 2025 is likely to be adjusted upwards.
Monetary policy stance: Continued accommodative support
In the GWR, China’s monetary policy direction has shifted from “prudent” to “moderately loose” – a change previously flagged at last December’s Central Economic Work Conference and the first major shift since 2011. This change signals a more accommodative stance, with the GWR indicating we should expect cuts in policy rates and required reserve ratios (RRR). We expect the first of these cuts could come in Q3, given the timeline of the Fed’s next rate cut. Our current forecast for 2025 includes 30 bps of cuts to the seven-day reverse repo rate and 50 bps of RRR cuts (see right-hand side of the chart below).
Furthermore, we expect the People’s Bank of China (PBoC) to continue directing credit towards key sectors. In general, green industries, sci-tech small and medium enterprises (SMEs), infrastructure and manufacturing, have seen significant increases in loan growth in recent years (see the right-hand side of the chart below). This demonstrates the PBoC’s commitment to supporting these “new productive forces (NPF)”. In contrast, loan growth to the real estate sector has remained near zero, reflecting the government’s determination to manage risks in this sector.
While the GWR reiterated a desire to “maintain the basic stability of the RMB exchange rate”, the RMB’s outlook for 2025 is expected to deteriorate (n.b. this Insight link is only availbe to CRU clients). The “America First Investment Policy” and escalating trade actions could intensify capital outflows and discourage foreign investment, adding downward pressure on the RMB. Although the PBoC remains committed to the RMB stability and will likely intervene, this pressure could accelerate the RMB’s decline towards RMB7.5 per USD by end-2026.
Boosting domestic demand, investment and NPFs
The government’s policy priorities for 2025 demonstrate a strategic focus on stimulating consumption, boosting investment and fostering NPFs. In a significant change, the first mentioned goal for 2025 is to “vigorously boost consumption and improve investment efficiency”. This emphasis on domestic demand is a key strategy to offset potential weakness in external demand.
To support this consumption push, the government has allocated RMB300 bn of ultra-long special treasury bond (STB) proceeds specifically for expanding a trade-in programme (see the table above), which was broadened to include electronic devices before the Chinese New Year holiday. This should stimulate demand in these sectors (see the chart below). The objectives of enhancing wage growth and reinforcing the social safety net were mentioned, but fewer specific details were given in these areas. That said, the scale of these measures suggests a moderate boost to consumption, rather than a dramatic surge.
Alongside consumption, a strong focus remains on infrastructure investment. The budget for “dual strategic” projects investment is set at RMB800 bn of ultra-long STB proceeds, up from RMB700 bn last year (see the table above). While real estate investment has grappled with ongoing challenges, infrastructure investment will show resilience, supported by government efforts to bolster overall economic growth.
This resilience will be fuelled by the accelerated issuance of local government special purpose bonds (SPB). Notably, the allocation of SPB proceeds will be different from previous years. While infrastructure development remains a priority, a new emphasis will be placed on supporting NPF sectors, which are recently included in SPB investment coverage (see the table below). In addition, part of the SPB proceeds will be used to swap hidden local government debt and to acquire idle land and unsold housing inventory, addressing financial risks and supporting the property sector.
While the government is pursuing fiscal expansion, the scale of the announced measures fell slightly short of our expectations (n.b. link only availble to CRU clients). Given the importance of achieving the growth target, the government has signalled a willingness to “dynamically adjust” policies, suggesting that further fiscal support may be forthcoming if necessary.
Implications for metals, decarbonisation and energy
The policy directions revealed during China’s Two Sessions create a landscape of opportunities and challenges for various sectors. The emphasis on infrastructure development, urban renovation, and strategic investments in sectors like advanced scientific research facilities, data centres and transport infrastructure, points to continued demand for metals such as steel, copper and aluminium. Notably, the State Grid’s announcement of a record investment of over RMB650 bn in the country’s power grid this year provides strong evidence of robust demand for wire and cable – key components of power infrastructure.
However, the government’s cautious approach to fiscal expansion and the absence of aggressive stimulus measures may temper the pace of growth in metals demand compared to previous years. It is also important to note that while the government is taking steps to stabilise the real estate market, we believe that these efforts will take time to materialise. As such, demand for building construction-related metals will likely remain subdued in the near term.
Finally, efforts to enhance efficiency and productivity across the economy, including addressing industrial overcapacity particularly in the steel sector, could further moderate steel demand growth. For deeper insights into these trends, CRU’s steel outlook reports provide comprehensive analysis.
In the energy sector, the GWR’s commitment to decarbonisation (while tempered by the recognition of challenges in meeting 14th Five Year Plan targets) signals continued growth in renewable energy sources like solar and wind power, albeit at a slower pace.
The emphasis on developing trans-regional energy projects, such as power transmission networks, will be crucial in facilitating the integration of renewable energy into the grid. However, the continued reliance on coal for a significant portion of China’s energy needs, coupled with the focus on energy security through projects like coal transportation corridors, suggests that the transition away from fossil fuels will be gradual. CRU’s Power Transition Service offers detailed analysis of these evolving energy dynamics.
Dynamic adjustments to shape China’s economic trajectory
China’s Two Sessions meeting has provided a clear picture of China’s policy priorities for 2025. The government’s focus on boosting consumption, directing investment towards strategic sectors, enhancing NPFs and decarbonisation, reflects a balanced approach to addressing the country’s opportunities and challenges.
The effectiveness of these policies will be crucial in determining China’s ability to achieve its growth targets. The emphasis on “dynamic adjustments” suggests a willingness to adapt to evolving circumstances, indicating a pragmatic approach to policy implementation. As the year unfolds, the impact of these policies on the ground will be closely monitored, providing our clients valuable insights into China’s economic trajectory.
If you are keen to hear more about our views on China and the global economy, please refer to our Global Economic Outlook and/or contact us here.
