In a strategic move to bolster its economy, China plans to raise its budget deficit to an unprecedented 4% of GDP in 2025, marking the highest level since major tax reforms in 1994. This decision underscores Beijing's commitment to maintaining an economic growth target of around 5%, despite escalating global challenges.
The proposed increase from the initial 3% deficit target for 2024 reflects a shift towards a more proactive fiscal policy. This approach aims to counteract economic pressures, including anticipated U.S. tariffs under President-elect Donald Trump's administration. The additional deficit, approximately 1.3 trillion yuan ($179.4 billion), is expected to be financed through the issuance of off-budget special bonds.
China's leadership is prioritizing domestic demand and consumption to address internal economic challenges such as a struggling property market, local government debt, and weak consumer spending. The Central Economic Work Conference emphasized the need for steady growth, with plans to enhance social security, healthcare, and education funding to boost consumer confidence.
In addition to fiscal measures, the People's Bank of China is expected to adopt a looser monetary policy to support this fiscal expansion. This includes potential interest rate cuts and the issuance of more long-term bonds to stimulate the economy. However, specific details of these monetary policies remain undisclosed and are anticipated to be revealed during the annual National People's Congress in March.
This bold fiscal strategy indicates China's readiness to deepen its debt to sustain growth, prioritizing near-term economic stability over financial risks. By focusing on boosting domestic consumption and high-tech manufacturing, Beijing aims to navigate the complex landscape of international trade tensions and internal economic challenges, striving to achieve its growth targets in the coming year.
