China is mobilizing fiscal and currency measures as its top priority this year is to promote domestic demand. The government plans to supplement residents' income bases, such as subsidies for home appliances that can directly stimulate consumption and pensions, and to reduce the benchmark interest rate in a timely manner. Regarding the background of this domestic demand-centric policy, which is influenced by the United States' tariff attack, it criticized the tariffs sharply, stating that they are "disrupting international trade order and shocking the global supply chain." It plans to strengthen export protection policies and expand service trade to overcome challenges.
◇ This year's top priority is 'promoting domestic demand'... Expanding various subsidies, timely interest rate cuts
On the 6th, the head of the National Development and Reform Commission (NDRC), which oversees macroeconomic policies in China, said at a joint press conference held at the news center of the Two Sessions (National People's Congress and the Chinese People's Political Consultative Conference), "We will strengthen efforts to increase consumer expenditure" and noted that "various departments have jointly established a 'special action plan to promote consumption,' which will be announced and implemented soon."
During the previous day's opening ceremony of the National People's Congress, China presented "promoting domestic demand, improving investment efficiency, and expanding domestic demand" as the first of ten key tasks. Director General Wang Wentao said, "The issues of insufficient domestic demand and the inability to release consumption potential remain quite pronounced," pointing out that "the ability and willingness to consume are relatively weak, and effective demand is constrained."
In this regard, the Ministry of Commerce plans to strengthen the 'old-for-new exchange' subsidy policy. Currently, the scope of subsidies for the old-for-new exchange program has been expanded from appliances '8+a' to '12+a', which includes smartphones, tablets, and smartwatches. According to Director General Wang, as of the 5th, a total of 1.01 million applications for subsidies for scrapping and replacing cars have been received this year alone. Subsidy applications have also been received for 12 million household appliances and 42 million digital products such as smartphones.
China also decided to expand its opening to the outside world. Director General Wang stated, "We will introduce higher quality services to improve the quality of supply" and said, "We will optimize visa policies for foreigners entering China, improve the convenience of entry, accommodation, and payment, and foster markets for international education, healthcare, and exhibitions."
From a fiscal perspective, the plan aims to boost consumer ability by enhancing the stability of residents' income. Director General Lan Poan noted, "We will raise the basic pension for urban and rural residents and appropriately increase the pension level for retired workers to benefit over 300 million people" and added that "for students, we will continue to implement interest-free and principal repayment deferment policies for national student loans, benefiting more than 34 million students." There are also plans to raise the level of subsidies for low-income individuals and establish comprehensive measures such as employment subsidies and unemployment insurance for those struggling to find jobs.
In the area of currency policy, support is also set to be provided for promoting domestic demand. Last December, China switched its stance from a 'moderate monetary policy' maintained since 2011 to a 'properly accommodating monetary policy.' Central Bank Governor Pan Gongsheng stated, "Considering domestic and overseas economic and financial conditions and the operation of the financial market this year, we will reduce the benchmark interest rate at an appropriate time" and noted, "The average reserve requirement ratio of financial institutions is currently at 6.6%, leaving room for further downward adjustments, and there is also space to lower the interest rates on funds the Central Bank provides to commercial banks."
◇ "Individual countries swinging the tariff club"... Strengthening export corporation protection
On that day, China also disclosed its response measures to the increase in tariffs by the United States. Director General Wang directly named the U.S., stating, "Currently, unilateral and protectionist measures are deepening" and "individual countries are swinging the tariff club, disrupting international trade order and shocking global industrial and supply chains, putting our country's foreign trade development in a serious situation." Former U.S. President Donald Trump imposed an additional 20% tariff on Chinese imports on the 4th of last month and the 4th of this month. This tariff imposition will inevitably hit exports, which were the main driver of China's growth last year. This background amplifies China's focus on promoting domestic demand this year.
Director General Wang emphasized that "we have introduced a series of policies to promote stable growth in foreign trade, and we will implement and intensify these policy measures." He also noted plans to strengthen service trade, including the establishment of comprehensive pilot zones for cross-border e-commerce. Judging by last year's figures, service trade accounted for only 14.6% of total trade, indicating significant room for development. The scale and coverage of export credit insurance for corporations will also be increased, as well as support for financing. Director General Wang said, "We have sufficient confidence and capability to stabilize the basic situation of foreign trade and take new steps toward building a strong trading nation."
However, Director General Wang left the door open for negotiations with the United States. He stated, "Threats do not work on China, and if the United States continues on the wrong path, we will stand firm to the end" and added, "The two countries can meet at an appropriate time, and teams from both sides can communicate promptly."