On December 17, Chinese leaders agreed last week to set a budget deficit of 4 percent of gross domestic product (GDP) for the coming year-the highest ever on record while continuing with an economic growth target of around 5 percent, said two sources.
This revised deficit plan, compared to the earlier target of 3% of GDP for 2024, is in line with a “more proactive” fiscal policy outlined by high ranking officials after the Politburo meeting in December and the just concluded Central Economic Work Conference (CEWC), where these targets were set but not announced.
The extra one percentage point of GDP in spending equates to about 1.3 trillion yuan ($179.4 billion). The greater stimulus will be funded through the sale of off-budget special bonds, according to the two sources, who spoke on condition of anonymity because they are not authorized to talk with the media.
Typically, these targets are not officially disclosed until the annual parliamentary session in March, and they can be changed up until that time. The State Council Information Office, which handles media inquiries for the government, and the finance ministry did not have an immediate comment in response to a Reuters request.
The expected fiscal expansion next year is part of a broader plan by China to cushion the economy from what it expects will be a strengthening in U.S. tariffs on Chinese imports, starting around the time Donald Trump returns to the White House next January. The two sources added that China would maintain a steady GDP growth target at around 5% for 2025.
A summary from state media on the closed door CEWC stressed that steady economic growth should be sustained, the fiscal deficit ratio should be increased and more government debt issued next year, though it gave no figures.
Economic news reports last month said government advisers had recommended that Beijing not cut its growth target.
The second-largest economy of the world has been going through some pretty strong headwinds this year, driven by a critical property crisis, high local government debt, and subdued consumer demand. Exports, which are among the few bright spots, could also soon face U.S. tariffs of more than 60%, if President Trump delivers on his campaign promises.
The threats from the President elect have unnerved China’s industrial sector, which exports goods worth more than $400 billion every year to the United States. In response, many manufacturers have started shifting their production overseas to avoid these tariffs.
Exporters have voiced apprehensions that such taxes would further deplete profits, which will have adverse impacts on employment, investment, and overall economic growth. Analysts also point out that these tariffs would exacerbate China’s industrial overcapacity and increase deflationary pressures.
Recent summaries from the Central Economic Work Conference and the Politburo meetings hinted at a more “appropriately loose” monetary policy in China’s central bank, which has set the stage for further interest rate cuts and liquidity support.
The former “prudent” policy stance of the central bank over the past 14 years thus corresponded to a more than five fold increase in total debt government, household and corporate whereas the economy itself expanded roughly threefold over that period.
Analysts believe China will rely very heavily on fiscal stimulus in the year ahead but also try in various ways to cushion the impact of tariffs.
Economic news reports from last week said that China’s senior leaders and policymakers are considering letting the yuan weaken next year to cushion the blow of punitive trade measures.
The CEWC summary reiterated a pledge to “maintain the basic stability of the exchange rate at a reasonable and balanced level,” similar to reports from 2022 and 2023.
