On 11 March 2025, China wrapped up its yearly Two Sessions on a promising note, signalling encouraging prospects ahead. The Two Sessions refer to the annual meetings of the national legislature, the National People’s Congress, and the political advisory body, the National Committee of the Chinese People’s Political Consultative Conference. They bring together policymakers to deliberate on the country’s key economic and social policy direction for the year. Marking the last year of the 14th Five-Year Plan, 2025 prioritises stability while concurrently building on forward momentum for growth and development.
A defining highlight was the release of the Government Work Report (“Report”) during the inaugural meeting. The findings and targets set out in the Report shed light on the roster of policy initiatives, legislative reforms, and stimulus measures to enhance the business environment for both domestic and foreign investors. Notably, the document fleshes out the extension of the colossal stimulus package, launched in September 2024, to revitalise the economy. In addition, it presents a blueprint for the comprehensive modernisation of the industrial system, focusing on high-end manufacturing and technological innovation.
Growth targets for 2025
An annual economic growth rate of around 5 per cent was announced at the Two Sessions. This forecast surpasses the 4.6-per-cent projection made by the International Monetary Fund for China in 2025 and the prevailing market consensus of 4.5 per cent. Meanwhile, more than 12 million new urban employment opportunities are in the pipeline. Additionally, the surveyed urban unemployment rate is expected to reach around 5.5 per cent; both figures exceed last year’s targets. Inflation, on the other hand, is set at approximately 2 per cent owing to deflationary pressures — a target that is said to be more broadly aligned with international monetary trends.
The proposed targets set forth in the Report reflect an understanding of the delicate interplay between domestic and global factors. Structural headwinds, such as a tepid housing market and debt concerns, as well as complex geopolitical conditions add to the cocktail of challenges. Achieving the 5-per-cent target is anticipated to foster job creation and enhance public welfare, all the while dovetailing with overarching goals of sustainable development.
Since the start of the year, China has seen a consistent upward trajectory in its production capabilities, supply levels, consumption patterns, and investment flows. Analyses indicate that the growth rate for the first quarter will hover around 5.5 per cent year on year, notwithstanding the reduced number of working days during January and February and the Spring Festival’s earlier arrival.
Expansionary and proactive fiscal policy
Chinese officials unveiled plans to support the 5-per-cent growth target with increased fiscal outlays, which is expected to raise the deficit-to-GDP ratio to around 4 percent of GDP — the highest level observed in several decades. The projected overall fiscal shortfall totals RMB 5.66 trillion, of which RMB 4.86 trillion is earmarked for the central government.
Disbursing fiscal allocations to key public services, such as education, eldercare, and healthcare, will take pride of place to ease the financial burden on households and incentivise greater consumer spending. By tightening fiscal oversight and discipline, Beijing aims to curtail superfluous spending, thereby freeing up resources for critical investments in initiatives that promote social welfare and economic development.
To invigorate the economy, the Chinese government plans to issue ultra-long special treasury bonds, amounting to RMB 1.3 trillion, this year. This represents an increase of 300 billion yuan from the previous year. A total of RMB 200 billion will be designated for the upgrade and modernisation of large-scale equipment, RMB 300 billion for the trade-in of obsolete consumer items, and RMB 800 billion for long-term strategic initiatives. At the local government level, special-purpose bonds, to the tune of RMB 4.4 trillion, are planned to refinance local government debt and address excess housing inventory.
Further, special treasury bonds worth RMB 500 billion will be issued to provide additional capital support to major state-owned banks, specifically to restore their tier-one capital reserves. The beneficiaries are Bank of China, China Construction Bank, Bank of Communications, and Postal Savings Bank of China. Capital replenishment can help strengthen banks’ structural integrity, while enabling them to better support the real economy and keep the financial system afloat.
Moderately loose monetary policy
At this year’s Two Sessions, China’s monetary policy stance shifted from “prudent” to “moderately loose”, marking the first major adjustment since 2011. The move had already been signalled earlier at the Central Economic Work Conference back in December 2024. The Report hinted at timely reductions in interest rates and required reserve ratios (“RRRs”), with the first round of cuts likely to be announced within the next few months. As it stands, the average RRR among China’s financial institutions is 6.6 per cent, pointing to the possibility of further cuts.
Through prompt adjustments to interest rates and RRRs and an increase of money supply, the policy seeks to boost market liquidity, thereby expanding access to credit for businesses and individuals. An adaptive monetary policy will be able to better serve the needs of high-quality development and industrial modernisation. Moreover, effective use of monetary policy tools can ensure greater capital flows into strategic emerging industries, spurring innovation and long-term economic growth. Several of these future-oriented industries will be explored further below. The additional money pumped into circulation will be conducive to the development of micro-. small-, and medium-sized enterprises, as well as bolster investor confidence.
In the Report, officials also reaffirmed their commitment to upholding the core stability of the renminbi exchange rate within a reasonable and balanced range. The stance suggests that top-tier policy direction has remained unchanged. According to People’s Bank of China, all efforts will be put into “resolutely preventing exchange rate overshooting”, while propping up “the decisive role of the market” in the wake of shifting trade dynamics with the United States.
Boosting consumption
A critical priority stated in the Report is stimulating consumer spending, optimising investment utilisation, and driving growth in domestic markets. Time and time again, it has been reiterated that domestic demand is to take the helm as the key engine of growth, while infrastructural investment takes a back seat. To achieve this repositioning, however, structural weaknesses in consumption must be effectively addressed, along with harnessing synergies between consumption and investment.
Strengthening the resilience of the Chinese economy is uppermost in Chinese policymakers’ minds. To this end, it is important to mitigate the adverse effects of external shocks and transition from an export-driven growth model to one fuelled by domestic demand. This entails driving up consumption and re-sculpting consumption habits, especially by tapping into opportunities in the services, healthcare, and digital consumption sectors. The mammoth scale of China’s domestic market, coupled with its fully-fledged industrial system, creates ample opportunities for expanding demand.
At the heart of the policy agenda are measures aimed at enhancing the consumer experience, increasing consumer purchasing power, and expanding the supply of high-quality offerings. This involves, for example, increasing the spending capacity of low-income households by facilitating wage growth and alleviating financial pressures on lower-income brackets. In addition, the real-wage growth adjustment system will be refined to ensure that rising incomes translate into stronger and more stable consumer demand.
Development powered by new quality productive forces
Sharpening China’s competitive edge in advanced technologies took thematic centre stage during the Two Sessions. The Report ranked the cultivation of new quality productive forces (“NQPFs”) as the second-highest priority for 2025. First coined in late 2023, the term NQPFs refers to a pioneering economic growth paradigm — based on the rapid evolution of groundbreaking technologies giving birth to new economic systems, social configurations, and emerging sectors.
Simultaneously, NQPFs also play a crucial role in modernising traditional industries through digitalisation, enhanced connectivity, and the implementation of smart upgrades to boost productivity and efficiency. The convergence of next-generation technologies and data-driven innovation is spawning new business models. Beyond seismic shifts at societal and macroeconomic levels, the transformation is profoundly changing organisational dynamics and production processes.
The palpable change in Chinese policymakers’ rhetoric over the last five years has culminated in a decisive departure from the export-led growth model, which shaped China’s development narrative from 1979 to the early 2010s. According to the export-led growth hypothesis, a significant contributor to economic development is the expansion of export activities. Exports, therefore, serve as a powerful engine of growth. While this model may still hold true for other developing economies, China has grown out of it. Today, the fulcrum of China’s newly conceived framework is the development of technological hardware, which requires highly sophisticated industrial and production capabilities. Central to this economic vision is a balancing act between the needs of globalisation and those of localisation, as China attempts to increasingly indigenise its high-tech, high-value supply chains.
Widening doors to foreign investment
Despite China’s shift towards a more inward-oriented growth model, it would be misleading to interpret this as closing its doors to foreign investment. This assumption cannot be further from the truth. China remains deeply engaged with the global economy and continues to welcome foreign investment with open arms. The world’s second largest economy is steadfastly committed to fostering a more inclusive and business-friendly environment, enabling foreign enterprises to actively participate in the co-creation of its growth narrative 2.0.
In a notably bolder tone than 2024, Beijing vows to “strongly encourage” foreign investment in this year’s Report, actively promoting opening-up “irrespective of shifts in the external environment”. In addition, the Report outlines a slew of initiatives aimed at creating a more favourable environment for foreign investors to conduct their business activities. The measures echo those set forth in the 2025 Action Plan to Stabilise Foreign Investment issued this February. These include ensuring national treatment and a level-playing field for foreign-invested entities, as well as expanding the scope of sectoral pilot programmes and pilot free-trade zones. Moreover, the Report furnishes further details on foreign-invested businesses’ access to key production factors. Placed on equal footing with their domestic counterparts, they will enjoy the same level of access to capital, land, labour, technology, and data.
On the multilateral treaty front, the Report underscores the importance of deepening cooperative ties with other economies formalised through treaty-based trade pacts, including the China-ASEAN Free Trade Area 3.0 and the Regional Comprehensive Economic Partnership. Such international agreements help instil greater predictability and stability into the business environment. They allow foreign companies to operate under a more transparent legal framework and benefit from better safeguards for their investment interests.
Key role played by private and foreign enterprises
The Report pointed out the indispensable role played by private and foreign enterprises in steering technological innovation. Although the pursuit of self-sufficiency is the mainstay of the development of NQPFs, policymakers have designated foreign investment and the private sector as significant drivers. They urge for more effective utilisation of foreign capital and talent to accelerate the growth of NQPFs. Chinese enterprises are encouraged to explore different collaborative opportunities with their counterparts abroad.
To promote greater participation of foreign enterprises, the Report continued the momentum in the 2025 Action Plan to Stabilise Foreign Investment released in February. It underscored China’s pledge to expand the opening-up of key service sectors, such as culture, education, healthcare, and telecommunications, to foreign investors. Internet-related industries were added to the list, signalling a push to liberalise access in areas traditionally subject to tighter controls.
China’s wide-open stance on foreign investment was also evident in a recent address delivered by the Chinese leadership at a high-level meeting with 40 executives from leading multinationals. Foreign enterprises have been a co-author of China’s success story, contributing significantly to the country’s trade, industrial output, fiscal income, and job creation. Beyond their weighty economic contribution, foreign businesses have enriched the pool of managerial and technological know-how, with research and development spending surging by 86 per cent and the value of patents skyrocketing by 336 per cent. It is patently clear that achieving high-quality, innovation-led growth necessitates not only the beefing-up of domestic capabilities, but also close, sustained, and well-informed engagement with international partners.
Meanwhile, foreign investors have reaped attractive returns from their endeavours in China, with their businesses often expanding far beyond their initial scope. It is a common and familiar trajectory: what begins as a single-factory operation evolves into a sprawling conglomerate, as foreign businesses scale up their presence in China.
Becoming a magnet for international talent
On the manpower front, China reaffirmed its commitment to reeling in foreign talent at the Two Sessions, as it strives to consolidate its competitive position on the world stage. It will double down on efforts to build a reservoir of high-calibre talent — a panoply of engineers, entrepreneurs, scientists, master artisans, and other highly skilled professionals. The integration of global expertise is considered instrumental in creating an open and inclusive innovation ecosystem. Bringing international talent on board can accelerate knowledge transfer, promote cross-border collaboration, and breathe fresh air into the ecosystem — all of which are crucial to enable China to move up the value chain.
Plans were announced to streamline visa policies and refine regulations governing the entry, housing, and payment procedures for foreign nationals. They build upon recent moves by Beijing to unilaterally extend visa-free access to travellers from 38 countries, mainly from Asia and Europe. In a further bid to attract overseas talent, the Report outlined plans to upgrade support services, facilitating the recruitment process for domestic and foreign enterprises operating in China.
Emerging strategic industries for foreign investors
High-tech
All eyes are on China’s technological feats and its meteoric rise in the tech race. In particular, the recent launch of China’s homegrown language model DeepSeek has left spectators around the world awe-struck. DeepSeek’s ascendancy has whetted investors’ appetite for Chinese companies specialising in software and computing systems, rekindling enthusiasm in the sector.
As discussed above, the property sector has lost steam as a traditional driver of economic activity and investment. In its place, high-tech industries have been taking up the slack and powering ahead. Pundits have projected a steep increase in investment across AI-related fields between 2025 and 2027. The surge is expected to lift GDP by nearly one percentage point by the end of the decade. The projected jump stems from an early wave of capital expenditure from tech companies, which is likely to evolve into more extensive spending on AI-driven end-user services by non-tech organisations, as AI becomes increasingly woven into standard business functions.
Investors’ renewed interest has been reflected in the steady flow of capital into tech- and internet-focused equities since the beginning of 2025. Onshore A-share indices involved in humanoid robotics and quantum computing have posted notable gains. The Hang Seng TECH Index, an important indicator for investors worldwide to measure innovation-fuelled China’s growth, climbed by over 35 per cent in the previous quarter.
Education
According to the Report, the opening-up of the education sector also sits high on the agenda in China’s push to lure foreign investment. At present, the Chinese government does not yet permit the establishment of wholly foreign-owned preschools, high schools, and universities. Investors’ eyes are keenly peeled for imminent concrete measures of regulatory easing that will open the doors to greater foreign participation.
Released on 13 March 2025, the Draft Central and Local Budgets for 2025 presents a raft of policy initiatives to bolster China’s innovation prowess by prioritising scientific advancements as well as educational reforms. Among the targeted financial measures is a 5-per-cent increase in government spending on centrally administered education compared to the previous year, bringing the total to RMB 174.4 billion.
Moreover, measures will be introduced to improve the allocation of educational resources to eliminate long-standing inequalities between different areas, regions, and communities. Other key policy tools include the rollout of free preschool education and the expansion of secondary education offerings, with the goal of promoting fairer access to schooling opportunities. Meanwhile, the development of a new funding model for vocational education is in the works to better match training programmes with the changing demands of the labour market. On the higher education front, emphasis is put on establishing cutting-edge universities, advancing key academic disciplines and areas of research, as well as cultivating high-calibre talent.
Healthcare
China plans to further ease restrictions on foreign investment in the healthcare sector — a move experts say will help raise service standards and cater to the ever-growing demand for more personalised and better-quality medical care.
Under a policy announced in September 2024 by the Ministry of Commerce, the National Health Commission, and the National Medical Products Administration, the green light was given to the establishment and operation of wholly foreign-owned hospitals in eight cities, including Beijing, Guangzhou, Shanghai, and Shenzhen as well as Hainan Island.
This policy initiative aligns with Chinese decision-makers’ goal to strike a balance between the roles of public and private entities in the healthcare industry. Making up 80 per cent of the country’s healthcare system, state-run hospitals will continue to deliver basic and primary care. Meanwhile, authorities anticipate the provision of a wider spectrum of services and more sophisticated treatments, including the application of state-of-the-art technologies and innovative therapies, by foreign-invested institutions. In particular, the latter are to play a complementary and supportive role by providing services that go beyond the scope of public health insurance.
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