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But“we believe most policies remain focused on supply-side measures, such as investment in industrial advancement,” Zook says.“Local governments will be permitted to use bond proceeds to purchase idle land or vacant housing units, but it is unclear if the amounts involved will be substantial.”

At the same time, many economists expect monetary policy to be eased via official rate cuts and RRR reductions.

“Deflationary pressure is persistent,” says economist Zhiwei Zhang, president of Pinpoint Asset Management. Making matters worse, he says,“policy uncertainty in the US is still elevated.”

Julian Evans-Pritchard, head of China economics at Capital Economics, says that“while policymakers have signaled a willingness to do more to support domestic demand, a lot of fiscal spending is still being devoted to expanding the supply side of the economy.”

Evans-Pritchard adds that“it seems unlikely that consumption support will be sufficient to fully offset weaker exports. As such, overcapacity looks set to worsen, exacerbating downward pressure on prices.”

Adding to Xi's balancing act is a desire to keep the yuan exchange rate stable. This will be particularly challenging as the PBOC eases and Trump's chaotic White House trashes confidence in the US dollar.

This year alone, the dollar is down 9.6% versus the euro and nearly 9% versus the yen.

This trajectory may give Beijing scope to tolerate a weaker yuan without being labeled a currency manipulator by Trump's Treasury Department. Generally, though, few see Xi resorting to a weaker exchange rate to boost exports.

For one thing, notes HSBC strategist Joey Chew, a yuan devaluation could“weaken” consumer confidence and“risk capital flight” at the worst possible moment for Beijing.

Christopher Wong, strategist at Oversea-Chinese Banking Corp, notes that“policymakers may prefer to maintain some degree of measured yuan stability. A softer magnitude of increase in the dollar-yuan fix should calm sentiments for yuan, as well as provide a breather for Asian currencies.”

Dan Wang, China director at Eurasia Group, warns that Xi using the yuan as a trade war weapon might be“inviting financial crisis on its own.”

That's why Team Xi is veering the other way by reassuring global investors it will defend, not deflate, the yuan . In other words, speculators who short the yuan do so at their own peril.

Yet Xi's government has a bigger challenge on its hands: Goal No 2, which is shifting China once and for all away from exports and debt-financed investment toward a domestic demand-led growth model.

The Politburo meeting later this month could be a make-or-break moment for Xi's desire to move China decisively upmarket into higher value-added industries. A key element of that transition is building bigger social safety nets to encourage households to spend more and save less.

Xi's inner circle has been telegraphing moves to do everything from reducing regulations, boosting the birthrate, upping subsidies for some exports and devising a stabilization fund to shore up its stock market.

But the real focus must be on creating the social safety nets that the central government and municipalities have been promising for years.

Doing so is easier said than done, though. In the medium term, for example, Xi's land reforms that benefit China's 477 million rural residents could just lead to higher rural savings unless they're paired with substantial improvements in rural social welfare, says economist Camille Boullenois at Rhodium Group.

In 2023, Boullenois notes, rural residents had an implied savings rate of just 13.7%, compared to 33.8% for urban residents – probably because they have far less income to save.

“Given the severe shortfalls in public services and social safety nets in rural areas,” she says,“any increase in rural income would likely be set aside as precautionary savings to guard against future uncertainties, rather than spent on consumption.”

Generally speaking, Boullenois adds, Chinese households already bear a disproportionate share of basic service costs. In 2021, out-of-pocket healthcare spending accounted for 35% of total health expenditures in China, compared to just 13% in Organization for Economic Cooperation and Development countries.

Similarly, households spent an average of 7.9% of their annual expenditures on education, far exceeding the 1% to 2% seen in Japan, Mexico, and the US.

“Meaningfully boosting consumption requires structural reforms to address the rural-urban divide, the precarious position of migrant workers, and the misallocation of capital by state-owned enterprises and banks,” Boullenois says.

“Many of these issues were recognized in China's 2013 reform agenda but have remained largely unaddressed due to political and financial constraints.”

The bottom line, Boullenois says, is that“substantial fiscal resources will be required. Tens of trillions of RMB – likely around 30% of China's GDP – would be needed to fund both one-time investments, such as social infrastructure and financial stabilization measures, and ongoing expenditures to support social transfers and public services.”

That means sweeping changes to China's tax system, a reallocation of government spending and increases in central government borrowing.

It also means increased local government incentives to ensure that new fiscal resources are directed toward social spending rather than investment-driven growth.

Along with the necessary resources and financial commitments, moving toward a fundamentally new model requires big changes in the Communist Party's mindset.

Despite its name, China's ruling party bigwigs tend to“have an aversion to being 'welfarist,' which historically aligns with China's tendency to view its citizens as a source for labor and tax revenue rather than as human resources to be cultivated and assisted when in need,” says economist Thomas Duesterberg at the Hudson Institute.