China will likely moderately step up fiscal and monetary policy, but it does not necessarily benefit other countries as much as during the global financial crisis.
The massive stimulus package at that time was 4 trillion yuan, equivalent to 11 per cent of gross domestic product in 2008. It was a big boost to China’s domestic demand mainly through credit expansion and infrastructure investment but with a cost of higher government debt. Other countries benefited as China imported more goods and commodities, cushioning the global shock in demand.
Things are different this time for two reasons.
First, the Chinese government is more concerned about debt than before and has set the tone to accept a slowly decelerating economic growth rate.
Unlike the past era, China now focuses on “high-quality development” with a more ambiguous growth target at “around 5 per cent”. The People’s Daily, flagship newspaper of China’s Communist Party, published an article in December 2024 stating China does not need to commit to a specific growth rate. There is also stronger emphasis on risks with local government debt restructuring and bank recapitalisation but less so on credit expansion.
The policy focus on long-term “high-quality development” will limit support to a piecemeal approach – proportional to the pressure from Mr Trump, nothing more and nothing less. A sudden rebound in China’s economic growth is not likely, especially with problems arising from the ageing population and its beleaguered real estate sector.
