As China faces a pivotal economic juncture, President Xi Jinping’s deliberations on a forthcoming stimulus package are set against a backdrop of global uncertainty, namely the possibility of Donald Trump returning to the White House. Should Trump win the upcoming U.S. presidential election, Beijing may once again contend with the hostile trade policies that characterized his first term, complicating China’s already complex path toward economic recovery and modernization.
With the gathering of the Standing Committee of the National People’s Congress (NPC) set for November 4 to 8, investors are holding their breath for details of Xi’s stimulus plan. Markets have been largely subdued in recent months, with Chinese lawmakers having increased the government’s fiscal deficit mid-year—a rare move not seen since 2000—in recognition that the post-COVID economic rebound was sputtering. Observers are now waiting to see if the 2024 stimulus will go further, as a Trump win could reshape Beijing’s plans and priorities in profound ways.
China’s economic engine has been faltering throughout 2024, with weak domestic consumption, a flagging property market, and deflationary pressures. To meet an economic growth target of 5%, Xi Jinping has shifted focus toward targeted government spending, marking a policy shift from the cautious economic approach that characterized the early years of his third term. Ministry officials have hinted at large-scale interventions aimed at improving municipal finances and propping up a beleaguered real estate sector, underscoring Beijing’s urgent desire to stabilize a struggling economy.
The proposed measures include debt swaps to ease the financial burden on local governments, capital injections to support banks’ lending capacity, and the possible acquisition of unsold properties to arrest the downward spiral in real estate prices. Each of these policy ideas could help China navigate its current deflationary environment, but their implementation remains tentative amid the looming U.S. election outcome. The timing of the NPC meeting, just days after Americans go to the polls, may reflect Beijing’s intent to adapt its stimulus strategy depending on who wins the presidency.
Trump’s re-election could create substantial ripple effects across China’s economic policy landscape. Known for his hawkish trade stance on China, Trump initiated a tariff war in 2018 that reshaped U.S.-China relations and accelerated Beijing’s push to achieve technological and industrial self-sufficiency. During his previous term, his administration’s tariffs and tech restrictions, especially the blacklisting of telecommunications giant Huawei, led China to increase state support for strategic industries.
Since Trump’s departure, President Joe Biden has maintained many of these hardline policies, prompting Beijing to redirect even more resources to technology and industrial upgrades. A Trump comeback would likely intensify these efforts, potentially accelerating China’s push to protect critical sectors from U.S. trade restrictions.
Nomura Securities economist Lu Ting has estimated that China’s stimulus could be as much as 20% larger if Trump wins, according to sources cited by Reuters, with the government reportedly considering over 10 trillion yuan in new debt over the next several years. This type of stimulus would not only aim to boost China’s economy but also to shield it from potential disruptions caused by renewed trade hostilities.
However, such an ambitious spending plan carries risks, both domestically and globally. Beijing’s recent emphasis on long-term, ultra-long special sovereign bonds signals its desire to mitigate fiscal constraints while maintaining control over the budget. These bonds could be directed towards a variety of purposes, from a potential 2 trillion yuan stock market stabilization fund to local government debt relief, as analysts have proposed. Yet even as Beijing leans into its expansive borrowing capabilities, China’s appetite for large-scale debt issuance has limitations.
The urgency to fortify China’s industrial base may force other critical policy goals to take a back seat. For instance, the push for greater self-reliance in high-tech manufacturing could draw resources away from supporting municipal governments facing severe fiscal shortfalls. Although China’s Ministry of Finance recently noted that local governments still had an unused bond quota of 2.3 trillion yuan, some economists argue that unspent funds are insufficient to close local funding gaps, especially with rising debt loads and a sluggish real estate market.
At home, Xi Jinping faces significant pressures as he aims to balance competing economic priorities. On one hand, he must address the rising financial strain on local governments and the need for fiscal support. On the other, the government remains wary of overextending itself on stimulus—a cautious stance that reflects concerns about accumulating too much debt in an already leveraged economy. Chinese state media has, in recent weeks, shifted focus away from specifics of the stimulus package, focusing instead on Xi’s diplomatic engagements, including his attendance at the recent BRICS summit in Russia.
While some economists argue that debt-driven stimulus could stimulate growth in the short term, others caution that it could exacerbate China’s long-term debt challenges. Particularly as Beijing aims to move beyond a reliance on debt-fueled growth, aggressive stimulus measures could conflict with the government’s stated goal of economic “high-quality development.” Indeed, even with ambitious spending plans, policymakers may find it difficult to address the full spectrum of issues hindering China’s economy without a clear commitment to addressing systemic weaknesses.
Another Trump presidency would likely force Beijing to prioritize its industrial policy, aiming to build resilient domestic supply chains and fortify high-tech manufacturing capacity. Acknowledging Trump’s impact on China’s economic policy, officials would likely double down on support for strategically important industries such as telecommunications, semiconductors, and renewable energy. For instance, following Huawei’s 2019 inclusion on the U.S. trade blacklist, China injected over $1 billion in government grants to the company in a bid to secure its technological competitiveness. Similar levels of support might be directed toward other companies if Trump revives the trade war.
In a recent move that highlights the importance of industrial policy, Beijing committed 300 billion yuan in July to expand an existing trade-in and equipment upgrade program aimed at boosting domestic consumption while supporting manufacturing firms. Should geopolitical tensions escalate further, these investments may have to increase, creating additional pressure on China’s fiscal position.
Investors are closely watching the NPC meeting, anticipating details that could shape China’s economic trajectory for years to come. Market observers believe that a robust stimulus could reinvigorate the country’s equity markets, which have struggled in recent months amid weakening growth. Yet the size and scope of the stimulus remain contingent on factors beyond China’s borders. With a Trump victory, markets could interpret an even larger stimulus package as a necessary buffer against external economic shocks.
Nevertheless, some experts caution that while a major fiscal intervention may provide a short-term lift to markets, it could come at the cost of broader economic stability. In particular, the surge in municipal debt and reliance on sovereign bonds could further strain China’s financial system, which is already grappling with non-performing loans in the real estate sector. Policymakers will need to carefully calibrate their fiscal response to avoid undermining China’s long-term economic sustainability.
The coming weeks could bring a significant test of Xi Jinping’s economic stewardship, as he navigates between bolstering domestic stability and preparing China for potential global challenges. While he is expected to push forward with some degree of stimulus regardless of the U.S. election outcome, a Trump victory would undoubtedly require recalibration of China’s economic policy.
Xi’s long-standing ambition to transform China into a high-end manufacturing hub will likely face new obstacles if the U.S.-China trade relationship deteriorates once more. Although Beijing’s leaders have signaled their resolve to counter Trump’s previous “bullying tactics,” the recent slowdown in domestic consumption and ongoing struggles in the property market underscore the fragility of China’s economy. Should Xi divert resources away from stimulating consumer demand to focus on industrial self-sufficiency, he may find it challenging to foster the kind of economic environment that attracts multinational investment and boosts domestic confidence.
