Policy support to shore up foreign investors' confidence

Foreign investors' renewed interest in the Chinese market is likely to surge this year, driven by intensified policy efforts to revive domestic consumption and an innovation boom rippling through the economy, executives and analysts said.

Anticipating swift implementation of the recently announced monetary and fiscal stimulus measures, they said that additional policy support may be introduced later this year as the government's pragmatic inflation goal signals a stronger commitment to forestalling any deflationary pressures.

"We recognize that China's consumption upgrade is well underway, and there is significant potential for consumption-led economic recovery," said Kenny Pan, Asia-Pacific vice-president of Huntsman Polyurethanes, a global chemicals company.

"With a growing middle-income group, rising consumer confidence amid an economic rebound and strong government support for the economy, China remains a key driver of global demand," Pan said.

Meng Lei, China equity strategist at UBS Securities, said that investor confidence in the capital market is also recovering, driven by a comprehensive set of policy stimulus, a recovery in corporate earnings and the impact of artificial intelligence advancements such as DeepSeek.

"With the producer price index narrowing its contraction and the consumer price index trending upward, a recovery in nominal GDP growth is expected to drive revenue increases in nonfinancial A-share companies," he said. "We estimate the earnings growth of CSI 300 Index components to reach around 6 percent this year, which will further attract global investors' attention."

Meng said that lower-cost access to AI models facilitates the development of software applications, which will in turn benefit sectors such as autonomous driving, industrial robotics, pharmaceuticals and finance. "All these will boost stock market valuations," he added.

Their comments came after this year's Government Work Report listed vigorously boosting consumption as a top priority in 2025 in the face of elevated external uncertainties. In a rare move, the report sets a consumer price index growth target of around 2 percent, marking the first inflation target below 3 percent in two decades.

"We are encouraged by the new 2 percent target on consumer inflation," said Xiong Yi, chief China economist at Deutsche Bank. "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."

According to the National Bureau of Statistics, China's consumer price index dropped 0.7 percent year-on-year in February, after a 0.5 percent rise in January. This was the first drop in CPI since January 2024.

The decline was primarily due to the Spring Festival's timing, which created a high comparison base. Excluding this factor, the CPI rose 0.1 percent year-on-year, indicating that a moderate price recovery remains intact, the NBS said.

However, Xiong Yuan, chief economist at Guosheng Securities, said the fundamental driver of the CPI decline is weak demand. "The necessity and urgency of reserve requirement ratio cuts and interest rate reductions have increased," he said.

The NBS said the producer price index, which gauges factory-gate prices, dropped 2.2 percent year-on-year in February, compared with a 2.3 percent drop in January amid rising production demand in some sectors.