China's 2025 domestic consumption focus to support oil demand: analysts

China's focus on boosting domestic consumption in 2025 is expected to support the country's oil demand, analysts told Platts, part of S&P Global Commodity Insights, on March 6.

Premier Li Qiang outlined the agendas for 2025 at the National People's Congress on March 5, as part of the "Two Sessions," which is the biggest annual political gathering in the country.

Li announced a steady gross domestic product growth target of "about 5%," along with a string of stimulus measures, including a decade-high fiscal deficit of 4% against GDP.

He outlined 10 targets for 2025, led by "vigorously boosting consumption, improving investment efficiency and comprehensively expanding domestic demand." Other priorities include the development of new productive forces, strengthening education and technological innovation and reforming the economic system.

Beijing is attempting to mitigate the impact of a challenging international environment triggered by Washington's tariff campaign by focusing more efforts inward.

"New productive forces are more energy-saving related, while 'domestic demand' would boost oil consumption," a Beijing-based analyst said.

China's top agendas for 2025 indicate a shift compared with 2024, when it prioritized "accelerated industry modernization and development of new productive forces," followed by consumption and investment.

Trade-ins boost feedstock oil

Li announced the issuance of Yuan 300 billion ($41.41 billion) in ultra-long special treasury bonds for consumer goods trade-ins in 2025. In contrast, the 2024 initiative introduced in July involved Yuan 300 billion in bonds for trade-ins of both consumer goods and machinery.

The Minister of Commerce Wang Wentao said March 6 that the trade-in program in 2024 boosted sales of durable consumer goods, including automobiles, especially new energy vehicles, home appliances and decorations by over Yuan 1.3 trillion.

Commodity Insights' AltVeiw estimates the program might have led to additional consumption of about 50,000 b/d of oil for manufacturing these goods in 2024.

"A shift from an export-driven to a domestic-led economy will likely increase Chinese oil intensity this year," said Grace Lee, a senior analyst with AltView. "However, specific policies, including the household trade-in/equipment renewal program, to drive electric vehicle adoption and increase fuel efficiencies will cap the increase."

Market sources indicated that goods for export are typically transported by trains and ships, while goods for domestic sales are usually moved by trucks, most of which continue to be fueled by gasoil, although the number of LNG-powered trucks is rising.

Tourism supports gasoline

Several market analysts expect China's gasoline demand to grow by about 20,000-50,000 b/d year over year in 2025 despite the displacement from EVs, supported by tourism.

Li aims to enhance tourism consumption through various methods, including the optimization of the public holiday schedule.

Travel demand persists in the country, although Chinese consumers have been cautious about spending post-pandemic due to concerns over unemployment and declining incomes.

"Budgetary issues have in part changed the way Chinese holidaymakers are now traveling, with a preference for individual road trips, outdoor recreational/experiential activities rather than luxury goods, and local attractions, all of which should be supportive of on-road mobility and gasoline demand," AltView's Lee said.

The Ministry of Transport's data on the Lunar New Year travel rush over January-February shows a 10% year-over-year increase in travel by commercial vehicles, such as ride-hailing and buses, and an 8% rise by personal vehicles. Meanwhile, travel by air gained 7% and rail 5% during the period.

Analysts from Chinese state-owned oil companies maintained their outlook of a reduction in fuel demand in 2025.

Commodity Insights analysts projected a reduction of 50,000 b/d in 2025, as gasoline demand is expected to peak in 2024.

Property sector and gasoil

For the first time, Li identified "stabilizing the property market" as an overall target for 2025, while stepping up fiscal and monetary efforts to support the infrastructure and property sectors.

However, market sources said that gasoil demand was unlikely to see an uplift from construction activities, as property market inventories remained high. Additionally, a significant portion of infrastructure spending was expected to be directed toward AI- and 5G-related facilities rather than traditional constructions like buildings, high-speed railways, airports and bridges.

Gasoil is typically used to fuel trucks for transporting building materials and powering construction machinery within the sector.

"Enhancing household income expectations is the key," said a Guangzhou-based property agent. "With a limited budget, people prefer to take the government benefits to trade in for new home appliances and renovations rather than being saddled with debts for a property."

Commodity Insights expects China's gasoil demand to fall 83,000 b/d in 2025.

Consumption tax

China's state planning body, the National Development and Reform Commission, on March 5 outlined details of Li's agenda for 2025, including facilitating a reform to collect the consumption tax on certain categories at the point of sale by wholesalers or retailers along the value chain, rather than from producers or importers.

China's consumption tax is primarily levied on tobacco, refined oil, automobiles and alcohol.

Currently, the consumption tax on refined products, including gasoline and gasoil, is collected from refiners. If implemented, the tax reform would nearly close a loophole that allows independent refiners to benefit from the existing taxation structure, thereby altering the competitive balance between independent refineries and their state-owned counterparts, according to market sources.

Independent refiners have evaded consumption tax payments by exploiting loopholes in the reporting system and benefiting from local authorities' lax enforcement of tax procedures.

Market sources said that authorities would take some time to develop the new policy and even longer to facilitate its implementation, such as making adjustments to the tax reporting system. Additionally, balancing the interests of oil product-producing and consuming regions presents a key hurdle in the reform process.

The NDRC reiterated its targets of reducing oil product output while increasing chemical production and expanding the petrochemical industry to fine chemicals. Additionally, the planning body aims to optimize the oil and gas pipeline operation mechanism to enhance allocation capacity and efficiency. Furthermore, there is a continuous emphasis on intensifying domestic oil and gas exploration and development efforts to increase production and boost reserves.