The Required Balance in China: Between Growth, Governance, and Globalization

As China embarks on a crucial new year, characterized by numerous economic and political maneuvers, the latest government work report released by Premier Li Qiang sheds light on the challenges and aspirations facing the world’s second-largest economy.

Amidst a global landscape of increasing fragmentation – exacerbated by an ongoing trade war with the United States, shifting alliances, and growing geopolitical uncertainties – Beijing strives to strike a delicate balance: “stimulating domestic growth, reassuring foreign investors, and enhancing its strategic position on the global stage.” This balance becomes more complex than ever before, with the ongoing transformation of the international system coinciding with China’s rise and global disruptions.

The central government’s target for GDP growth in 2025, set at around 5%, reflects pragmatism and confidence; it acknowledges the economic challenges China faces, including demographic challenges and slowing global trade, while showcasing a picture of resilience and ambition. This growth target differs fundamentally from the double-digit growth witnessed in previous decades and reflects a mature approach that balances ambition with caution. It aligns with the country’s long-term vision of maintaining stability without resorting to excessive stimulus efforts that could undermine financial sustainability or pose systemic risks. However, the path forward is far from clear, as risks arise from external pressures and internal structural adjustments.

An expanded fiscal stimulus package forms the cornerstone of China’s economic strategy for this year. The issuance of 1.3 trillion yuan (179 billion USD) in special long-term treasury bonds in 2025 – an increase of 300 billion yuan from the previous year – aims to inject liquidity into vital sectors, maintain economic momentum, and provide targeted support to key industries facing supply chain challenges. Similarly, the decision to raise the deficit-to-GDP ratio to around 4% reflects the government’s desire to adopt a proactive fiscal approach that prioritizes short-term growth. Ensuring that these measures contribute to sustainable and balanced growth will be crucial for bolstering long-term economic strength and avoiding over-reliance on debt-driven growth.

Despite escalating tensions with the West, China actively seeks to attract foreign investors. Li emphasized that Beijing remains committed to economic openness, pledging to expand access to key sectors such as telecommunications, healthcare, and education, which have traditionally been more isolated from foreign competition. The promise of a more open internet and cultural environment also indicates an attempt to balance economic liberalization with governance priorities. Ultimately, investors’ confidence will depend on how these commitments translate into tangible opportunities in the business environment, particularly regarding regulatory transparency and intellectual property protection. China’s ability to create an environment where foreign capital feels secure will determine its capacity to attract global talent and investment.

Private companies in China, long considered drivers of economic dynamism, remain central to the country’s economic aspirations. The government’s renewed commitment to protecting the rights of private companies and fostering a conducive environment for entrepreneurship reflects its recognition of their importance. Clear and consistent policies that support innovation, fair competition, and market-driven growth will be essential for sustaining economic vitality in the long run. However, the government has also shown an increasing inclination to prioritize state-owned enterprises in strategic sectors, which could pose a challenge to the independence of private companies in certain areas. Striking a balance between empowering private sector entrepreneurs and ensuring national security will remain a sensitive issue.

Recognizing the need to transition towards high-tech industries, China intensifies its efforts in artificial intelligence, smart manufacturing, and the Internet of Things. The government’s focus on “future industries” such as biotechnology, quantum technology, and sixth-generation (6G) networks reflects a strategic vision that goes beyond immediate economic recovery. These investments solidify China’s position as a leader in emerging technologies, fostering innovation and enhancing its global competitiveness. In particular, advancements in artificial intelligence and quantum computing enable the potential to reshape industries globally, and China’s efforts in these areas aim to establish the country as a major technological power. These sectors are expected to receive significant government support, ensuring their continued role as key drivers of economic growth in the coming years.

For the Special Administrative Regions of Hong Kong and Macau, this year’s central government message points to a subtle but significant shift; while the report reiterates the principle of “one country, two systems” and the need for national governance, it introduces a new focus on “deepening international exchanges and cooperation.” This suggests an enhanced role for Hong Kong as a global connector, extending beyond the financial realm to broader economic and cultural exchanges. Hong Kong has long been considered a bridge between China and the rest of the world, and Beijing’s latest rhetoric reflects an understanding of the city’s potential to leverage its advantages in trade, finance, and professional services to enhance its position in the global economy. This transformation may also involve Hong Kong playing a more active role in promoting Chinese culture and soft power on the global stage.

Amidst escalating geopolitical tensions, China’s decision to maintain a 7.2% increase in military spending – consistent with previous years – signals continuity rather than escalation. While some analysts interpret this as a restrained approach, others argue that sustained military expansion, particularly in the Taiwan Strait, bolsters China’s long-term strategic ambitions. As global supply chains continue to readjust, maintaining regional stability remains a top priority. Military strength remains an integral part of China’s broader geopolitical strategy, especially as it seeks to assert itself as a global power capable of protecting its interests. Although the increase in military spending is not substantial, the sustained commitment to defense spending underscores the government’s focus on ensuring its security in an increasingly unstable international environment.

Li candidly acknowledged that weak consumption remains a significant economic challenge. With rising urban unemployment pressures, especially among the youth, the government has committed to providing over 12 million new urban jobs, alongside targeted support for new graduates and migrant workers. Boosting consumer confidence and addressing structural issues related to inequality and regional disparities will be crucial for ensuring sustainable growth in domestic demand. Until these challenges are addressed, China faces the risk of continued consumption stagnation, which could hinder broader economic recovery.

China’s economic goals for 2025 are not limited to achieving a 5% growth target; they also encompass demonstrating resilience in the face of global volatility. The policies outlined in this year’s government work report reflect a delicate balance between: “implementing proactive fiscal measures while ensuring financial prudence; promoting economic openness while safeguarding national priorities; and pursuing technological ambition while keeping pace with the changing global landscape.” The effectiveness of Beijing’s implementation of these policies in the coming months will determine the trajectory of its long-term economic development.