Policy mix key to addressing structural woes

Faced with structural issues at home and mounting external uncertainties, China should put in place a mix of macroeconomic and industrial policies, alongside meaningful reforms, to spur effective demand, stabilize the property market, accelerate the shift from old growth drivers to new ones, and raise the nation's total factor productivity, economists said.

"The downward pressure facing the Chinese economy mainly comes from cyclical fluctuations and structural transition," said Huang Yiping, dean of Peking University's National School of Development.

"Stabilizing growth will be crucial; it will remain the main policy priority through 2025. And that requires a combination of macroeconomic, industrial policies as well as reform measures," Huang said at a recent meeting held by Peking University's National School of Development in Beijing.

Huang highlighted weakening traditional growth drivers and insufficient momentum from emerging industries as key structural challenges.

Meanwhile, lackluster domestic demand is exacerbating pressure on cyclical fluctuations. Thus, it is advisable to adopt a coordinated policy framework that combines both macroeconomic and industrial policies, he added.

A report released by the National School of Development during the meeting said that in the short term, macroeconomic policies should focus on stabilizing aggregate demand and preventing any systemic risks arising from the real estate sector. Industrial policies, on the other hand, should focus on facilitating the transition from old growth drivers to new ones.

"Fiscal policy should aim to stabilize the construction and real estate sectors while enhancing fiscal and tax support for emerging industries," the report said. "Meanwhile, monetary policy should take a more structural approach, providing targeted support for technological innovation and small and medium-sized enterprises."

In the medium to long term, the report said, it is necessary to advance reforms of the market-based allocation of production factors, strengthen property rights protection, and expand high-standard opening-up to stimulate private sector vitality and foster new growth drivers that help boost total factor productivity.

"Macroeconomic adjustments should focus on expanding aggregate demand and improving market expectations, while more efforts should be made to accelerate the formation of new growth drivers as old ones phase out," Huang said. "On the reforms front, deepening reforms will bolster confidence among businesses, improve market efficiency, and fully unlock economic potential and lead to faster growth."

Huang emphasized the critical role of stabilizing the real estate market, saying it will help stabilize the overall economy. Meanwhile, he pointed to the ongoing digital revolution, particularly those related to emerging fields like artificial intelligence and robotics, as a golden opportunity for economic transformation. "The key is whether we can seize this opportunity and translate it into real growth," he said.

Stimulating domestic demand is China's top priority this year, as it seeks to cushion the impact of more US tariffs.

In its 2025 Government Work Report, delivered during the annual two sessions, China announced that it will vigorously boost consumption and investment, and stimulate domestic demand across the board. It will also double ultra long-term special treasury bonds earmarked for its trade-in program to 300 billion yuan ($41.53 billion) this year.

Zhang Bin, deputy director of the Chinese Academy of Social Sciences' Institute of World Economics and Politics, highlighted the necessity of expanding public investment, noting that it will be the most effective way to boost household incomes and spur consumer spending.

He said during the meeting that consumption and investment are not in a zero-sum relationship but are positively correlated. "When investment grows faster, consumption grows faster. When consumption performs well, investment also grows faster, and economic growth accelerates."

Looking into the full year, Wu Ge, chief economist at Changjiang Securities, said China's preset annual growth target of around 5 percent is achievable this year, while the country may need stronger and unconventional policies if it aims to see the GDP deflator return to positive territory. The deflator is the broadest measure of prices across goods and services.