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China’s most important annual political gathering, the so-called , has as one of its main objectives the setting out of the year’s priority economic targets. This was done this year by Premier Li Qiang, on 5 March. He offered to the National People’s Congress and to China’s most important consultative body, the Chinese People’s Political Consultative Conference, a guarantee that the Chinese economy would be resilient against the Trump administration’s policies, starting with the the United States has put on Chinese goods.

The most obvious way to achieve resilience is to maintain the same 5% GDP growth target as last year – which is what Li Qiang did. However, China barely reached the 5% target last year, notwithstanding a huge trade surplus of $1 trillion. Li Qiang therefore sought to show how the commitment would be met.

Three policy changes are worth mentioning: laxer policies, lower prices and more manufacturing supply. The first involves increasing the official fiscal deficit from 3% to 4% of GDP, the largest on record, while easing monetary policy with imminent interest rate cuts. This is not a real policy shift, since the change in tone started in September 2024. No spending bazooka should be expected, however, since any massive fiscal expansion would only pile up more public debt, which has already reached 100% of GDP.

The second change was to lower the inflation target from 3% to 2%. With this move, Li appeared to indicate that China is ready to accept deflationary forces since lower prices can help China’s exports. In fact, export price growth was negative in 2024, and 2025 does not look better: in February consumer price inflation suddenly turned negative (-0.7%), following producer and export prices. While pushing prices down in order to compete is not risk-free (Japan’s experience in the 1990s is a good example), Trump’s additional 20% tariffs on China and the ongoing weaking of the dollar leave China little space.

The third important message from Premier Li was a confirmation that China will continue to step up its manufacturing capacity as a growth engine. In other words, China has no intention of correcting its overcapacity by reducing supply. Considering that the announced increase in the fiscal deficit does not seem to be directed at boosting consumption but rather at supporting local-government debt restructuring, consumption trends should not be expected to improve substantially in 2025, especially because the labour market remains weak and disposable income stagnant. Against this backdrop, China will need to force up exports to reduce its overcapacity problem – even more than in 2024, and while under pressure from a weaker dollar and higher tariffs.

For Europe, all this is worrying. Chinese products could further flood the European market. Given strong deflationary pressure, European companies operating in China are also likely to face even stronger competition, which will continue to hurt their profits.

Another way for China to rebuff Trump’s threats relates to self-reliance and, in particular, implementing critical technologies to reduce dependence on the US. Trump’s large-scale investment programmes, such as the artificial-intelligence infrastructure initiative, have been watched closely in Beijing and the reaction is clear.

First, the success of Chinese AI platform DeepSeek has instigated a recovery in the stock market, both on the mainland and in Hong Kong. With such a long-overdue return to positive sentiment, and given the importance attached by President Xi to Chinese self-reliance in technology, the two sessions devoted many discussions to announcing different types of support for critical technologies and, in particular AI.

To catch up with the huge US investment announcements and to support Chinese innovation in such technologies, two main new policies were announced. The first was the establishment of a 1 trillion renminbi ($138 billion) national venture-capital guidance fund aimed at strengthening AI, quantum technology, hydrogen energy and energy storage. The second relates to the easing of constraints on pursuing initial public offerings (IPOs). In particular, loss-making companies in priority sectors such as AI will be allowed to access public capital markets. This should boost positive sentiment in the stock market, at least insofar as these IPOs attract enough demand from investors.

Overall, China’s leadership used the two sessions to respond to Trump’s threats with a rebuff, first in terms of how much tariffs can hurt the Chinese economy and second on what China can do to reduce its technological dependence on the US.

This First glance was also published on .

This is an output of China Horizons, Bruegel's contribution in the project Dealing with a resurgent China (DWARC). This project has received funding from the European Union’s HORIZON Research and Innovation Actions under grant agreement No. 101061700.