Xi Prepares to Unveil China Stimulus Plan as Trade War with US Heats Up

Breakthroughs in AI, Xi's recent embrace of private entrepreneurs have driven a blistering equity rally ahead of the National People's Congress

- Bloomberg

President Xi Jinping heads into China's biggest political huddle of the year with his economy finally getting back some swagger. Donald Trump's rising tariffs will test Beijing's ability to sustain that momentum.

Breakthroughs in artificial intelligence (AI) and Xi's recent embrace of private entrepreneurs such as Alibaba's Jack Ma have driven a blistering equity rally ahead of the National People's Congress. But that optimism is already being tainted, with Trump's latest 10% tariff set to take effect just one day before Premier Li Qiang lays out China's economic blueprint for the year.

Thousands of delegates, including ministry chiefs and provincial leaders, will gather Wednesday in Beijing for the parliamentary conclave, where officials will set a bullish growth goal of around 5%, according to most analysts surveyed by Bloomberg.

To get there, policymakers are expected to push China's official budget deficit target to the highest in over three decades, pumping trillions of yuan into a system battling deflation, a property crash, and now a trade war with the US.

Almost two months into Trump's new presidency, the world's largest economies are on a collision course that makes it increasingly urgent for the Communist Party to unleash the spending power of its population. Unlike last year, there's little chance Beijing can bank on a boom in exports, and leaders have instead vowed to prioritize expanding domestic demand.

China is poised to change its policy "quite a lot" this year, said Yao Yang, a professor of economics at Peking University, who cautioned the measures still might not be sufficiently bold.

"My first worry is the fiscal stimulus isn't big enough, particularly when we consider local government debt," he said. "Secondly, if China and the US cannot negotiate a settlement, the American government probably will increase tariffs. Then we are going to get into a tit-for-tat war. That's going to be very bad."