While markets fixate on the strategic policy pivot in the United States, few are paying attention to what’s unfolding within China. With President Trump back in the White House and tariffs on Chinese goods raised to 145%, a major trade shock is already underway. China’s export engine is under pressure — and policymakers are responding.
Last week, as Washington’s sweeping tariff hikes captured global attention, the People’s Bank of China quietly injected 800 billion yuan ($110.32 billion) of liquidity into the banking system. Simultaneously, the Finance Ministry added another $69bn via share placements in state banks. These are not isolated interventions.
In fact, recent evidence suggests that Chinese policymakers are recalibrating away from their economic priorities of the past four years.
In 2021, a new regulatory cycle took hold. Policymakers moved to curb the highly leveraged business model of property developers with the “Three Red Lines” policy while also cracking down on “the disorderly expansion of capital” to rein in monopolistic behaviour among large tech companies. This resulted in a material consolidation in the real estate market and a deterioration in private sector sentiment. Meanwhile, policy support focused on transforming China’s manufacturing and export model, moving it up the value chain. This helped the country establish global dominance in sectors like autos and green energy equipment.
This model now looks increasingly fragile. The pressure from renewed US protectionism has laid bare the limits of China’s post-2021 export-led growth strategy. With tariffs biting and external demand under strain, the need for a new engine of growth is clear.
So how does China intend to hit its 2025 growth target of ‘around 5%’ in the face of such a large exogenous shock — one that will undoubtedly inhibit the post 2021 growth model? The simple answer: consumption.
Over the past six months, several policy shifts suggest a pivot towards domestic demand is already underway. It began last September with a reaffirmation of the policy put under Chinese equities. This was followed by a striking shift in housing rhetoric – from ‘houses are for living, not for speculating’ to ‘stop the decline’. Stabilising the property market is crucial to arrest the feedback loop of falling confidence, a debt deflation spiral and the resulting negative wealth effect.
At the same time, President Xi has taken visible steps to rebuild trust with the private sector, meeting firstly with top Chinese executives and then with global business leaders. These moves signal an acknowledgment that private sector confidence is essential for any recovery in domestic demand. Fiscal expansion has also been slated to rise by around 2% of GDP compared to last year, providing a further boost.
Most importantly, the recent Government Work Report explicitly stated that boosting consumption is now the top priority for 2025.
So, what does this new consumption-led growth model look like? In March, policymakers released a high level ‘special action plan’ targeting a broad range of consumption drivers. These include boosting income for both urban and rural workers, improving training and unemployment insurance, stabilising the property and equity markets, and addressing the high household savings rate – which reflects weak social protections. Initiatives to expand health insurance, pension provision and public services aim to free up household spending.
Other measures include expanding trade-in subsidies for appliances, autos and electric bikes, and improving credit access. There’s also a push to reform the holiday system and grow the service sector – notably healthcare and tourism – to create more domestic demand.
While the full details and intricacies of China’s consumption-led pivot are still emerging, the direction of travel is clear. The current trade shock will create opportunities for long-term investors, and given the direction of travel for policy, Chinese consumption plays are worth consideration post the sell-off in global equity markets.
