Stimulus measures may help boost consumption and revive the property sector but China has longer-term issues other than an escalating trade war
Neo Cheow Hui, whose company GKE Corp runs a ready-mixed concrete plant in Wuzhou, China, has become more upbeat in recent months. As building materials suppliers, such businesses have a direct pulse on changes in the oft-intertwined infrastructure and property sectors, which had been under strain because of the Chinese central government’s bid to rein in excessive activities and debt levels.
To date, GKE has provided for some $6.5 million in bad debt. The amount provided is clearly a significant sum for a company whose most recent half-year profit was a record $4.4 million.
At the recently concluded National People’s Congress (NPC) early this month, Neo is happy to note that Beijing has made it clear that stabilising the country’s property market to stem further declines has been maintained as one of the policy goals. Key stimulus measures include RMB1.3 trillion ($240 billion) in ultra-long-term special sovereign bonds and RMB4.4 trillion in local government special bond issuance.
Local governments, with the support and under the direction of the central government, are already moving ahead with new infrastructure projects. GKE’s Neo is seeing the first tell-tale signs of improvements: customers are starting to make good on some of the payments owed, which means the company can then write back some of what it had provided. New orders for revived projects are expected as well. “They have opened the taps again,” says Neo in an interview with The Edge Singapore.
Some market commentators are similarly upbeat. “We believe the Chinese economy is improving, slowly but surely. A cyclical recovery in China can be very powerful after a prolonged recession,” says Qi Wang, chief investment officer at UOB Kay Hian private wealth management.
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Boosting domestic demand
The problems that inflicted China’s once-red-hot property market were self-imposed, as the government prioritised debt-level control over the topline GDP numbers lifted by rising property prices.
While companies like GKE can feel signs of recovery, China’s economy continues to face challenges from the escalating trade war started by US President Donald Trump in his first term, maintained by his successor, Joe Biden, and now further escalated by Trump, who is back in the Oval Office.
For an economy that had relied heavily on investments and export-led growth for the better part of three decades, the trade war is definitely not good news. That is why some market commentators are not too sure if China can meet the 5% GDP growth target this year set at the NPC meeting.
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That is also why China is focusing on boosting domestic demand to pick up the slack from softer export numbers. Among the policy measures announced at the NPC, China will target to hold the urban unemployment rate at about 5.5% in 2025; there will be special initiatives to boost consumption, such as RMB300 billion this year to fund a consumer goods trade-in programme, double the amount dished out last year and a higher level of minimum payout for pensions. The RMB is also to be held steady so as not to erode spending power.
Some commentators wonder about the effectiveness of this policy angle — given how consumption is a smaller contributor to the overall economy. “The direction of monetary policy support remains overly biased towards increasing production and not consumption,” says Jahangir Aziz, head of emerging markets economics research at JP Morgan. “And if you look at the recovery process in China, it has been driven by much stronger production than consumption,” he adds.
Meanwhile, as policymakers try to steer this supersized economy, its stock markets are already reacting to a different set of signals. Since the start of the year, Hong Kong, for one, has gained by around a fifth, while Shenzhen is up just below 8%.
However, the gains have been rather narrowly confined to the high-tech sector, triggered by the “coming out” of homegrown artificial intelligence (AI) model DeepSeek, which claims to do what OpenAI is doing at a fraction of the cost. With DeepSeek slated to launch a new generation of the AI model in 2Q2025, the buzz is set to continue, suggests analysts such as Edith Qian of CGS International.
Still, there are some signs that investors are getting more bullish on China plays that are not part of the AI theme. For example, UOB Kay Hian has recently upgraded its call for DFI Retail Group . The Jardine Matheson subsidiary owns various retail and F&B businesses across the region but is heavily concentrated in Hong Kong. With expectations that this year will see an apparent stabilisation of consumer behaviour, Loh has raised his target price for the stock from US$2.57 ($3.42) to US$2.80. “We look forward to witnessing DFI delivering on its earnings growth in 2025,” says Loh.
CGS International, on March 10, initiated coverage on the Hong Kong Exchange, joining 24 other brokerages with a “buy” or equivalent call on this counter versus two “holds” and no “sell”. According to analysts Laura Li Zhiyi and Michael Chang, despite the strong rally thus far this year, there will be further upside thanks to strong structural growth of “southbound” investment flows of funds from the mainland. A favourable regulatory environment will attract more mainland companies to list in Hong Kong. Their target price of HK$490 ($84) suggests an upside of more than a third from current levels.
China’s real challenge
While China can better manage its domestic economy, the external front is less so. Some commentators have suggested that Trump, unable to deny China’s economic muscle, is using tariffs as a strategic tool to bring China to agree to a “grand reordering” of the landscape. For now, China’s policymakers are kept on their tactical toes in deciding how to react.
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On March 4, the US imposed a second round of 10% tariff hikes. CGS International’s Qian expects the timeline for further hikes to be accelerated. This means China’s current policy package may not be enough to mitigate the impact of these tariffs while meeting the 5% GDP growth target. “Given the heightened downward pressure from a further escalation in trade tension, we expect that additional policy support will be necessary,” she says.
Yet, others also warn of broader issues and longer-term challenges other than Trump’s tariffs. “We are all so focused on Donald Trump’s next tariff move on China that we risk losing sight of the fact that it is Xi Jinping’s decisions on domestic economic policies that are the more important factors for investors,” says Andy Rothman, a China strategist and founder of Sinology. “Domestic demand is, after all, the main driver of China’s economic growth and it is up to Xi to fix the key problem,” he adds.
Wang of UOB Kay Hian has a similar view. “China’s biggest long-term challenge is neither Trump nor real estate, but the population decline.” China, recently overtaken by India to be the second most populous nation, might turn grey before it can become rich — no thanks to the longtail effect of the “one-child policy” that has turned into “no child” for many young Chinese adults who are struggling with costs of housing and living. Wang notes that at the recent NPC, policymakers have “finally” confronted this not-new issue with a range of so-called “child stimulus”.
Among the exact details to be announced, China plans to raise fiscal subsidies for residents’ medical insurance by 4% and healthcare fees by 5%. To encourage its people to have more children, China plans to set up childcare or childbirth subsidies for families with young children and will also implement free preschool education.
Meanwhile, investors can look forward to some reprieve and position themselves accordingly. “We expect China’s consumption to recover well due to a combination of stimulus measures and the ongoing real estate recovery,” says Wang. — additional reporting by Felicia Tan and Douglas Toh
