China’s top legislative body, the National People’s Congress Standing Committee, concluded its week-long session by announcing a substantial debt swap, which will help avoid a more austere fiscal backdrop. 

Finance minister Lan Foan outlined a plan to reduce ‘hidden’ debt by RMB 10 trillion, with local governments benefiting from a RMB 600 billion (~0.5% of GDP) reduction in interest payments over the next five years.

While this is welcome and authorities indicated that further measures to support the economy – such as fiscal spending for consumption – were still under consideration, a pattern of announcements coming more slowly, and in underwhelming size, appears to be setting in. 

Admittedly, Trump’s win suggests Chinese authorities will ramp up easing in 2025. While trade threats against other countries may be aimed at extracting concessions, such as reducing flows of migrants from Latin America, it’s unlikely that China can avoid another tariff shock.

 However, additional stimulus and currency depreciation can only offset some, but not all, of the immediate economic hit from higher tariffs. 

For now, we assume that the average bilateral tariff rate will be roughly doubled from 16% to 35-40%, pushing our growth forecasts down to 4.4% and 4.2% for 2025 and 2026 respectively (-0.2ppts each). A more aggressive stimulus package could mitigate more of the near-term damage, but a long-run drag will still be hard to avoid. 

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