People gather on an observation deck of a shopping mall as they look at buildings in the Central Business District, in Beijing, on Oct. 18.Kevin Frayer/Getty Images
Chinese leaders agreed last week to raise the budget deficit to 4 per cent of gross domestic product (GDP) next year, its highest on record, while maintaining an economic growth target of around 5 per cent, two sources with knowledge of the matter said.
The new deficit plan compares with an initial target of 3 per cent of GDP for 2024, and is in line with a “more pro-active” fiscal policy outlined by leading officials after December’s Politburo meeting and last week’s Central Economic Work Conference (CEWC), where the targets were agreed but not officially announced.
The additional one percentage point of GDP in spending amounts to about 1.3-trillion yuan ($255-billion). More stimulus will be funded through issuing off-budget special bonds, said the two sources, who requested anonymity as they were not authorized to speak to the media.
These targets are usually not announced officially until an annual parliament meeting in March. They could still change before the legislative session.
The State Council Information Office, which handles media queries on behalf of the government, and the Finance Ministry did not immediately respond to a Reuters request for comment.
The stronger fiscal impulse planned for next year forms part of China’s preparations to counter the impact of an expected increase in U.S. tariffs on Chinese imports as Donald Trump returns to the White House in January.
The two sources said China will maintain an unchanged GDP growth target of around 5 per cent in 2025.
Referring to the Reuters report, Morgan Stanley said that it expects the quota for off-budget bonds to expand modestly, which, combined with an expansion in the official deficit, could lead to around two-trillion yuan in augmented fiscal expansion.
“Five-per-cent GDP target does not imply aggressive and balanced stimulus. We think the high growth target aims to guide expectations and boost confidence, rather than act as a binding constraint,” it said.
A state media summary of the closed-door CEWC last week said it was “necessary to maintain steady economic growth,” raise the fiscal deficit ratio and issue more government debt next year, but did not mention specific numbers.
Reuters reported last month that government advisers had recommended Beijing not to lower its growth target.
The world’s second-largest economy has stuttered this year owing to a severe property crisis, high local government debt and weak consumer demand. Exports, one of the few bright spots, could soon face U.S. tariffs in excess of 60 per cent if Mr. Trump delivers on his campaign pledges.
The U.S. president-elect’s threats have rattled China’s industrial complex, which sells goods worth more than US$400-billion annually to the United States. Many manufacturers have been shifting production abroad to escape tariffs.
Exporters say the levies will further shrink profits, hurting jobs, investment and economic growth in the process. They would also exacerbate China’s industrial overcapacity and deflationary pressures, analysts said.
The summaries of the CEWC and the Politburo meetings also flagged that China’s central bank would switch to an “appropriately loose” monetary policy stance, raising expectations of more interest rate cuts and liquidity injections.
The previous “prudent” stance that the central bank had held for the past 14 years coincided with overall debt – including that of the government, households and companies – jumping more than five times. The economy expanded roughly three times over the same period.
China is likely to rely heavily on fiscal stimulus next year, analysts say, but could also use other tools to cushion the impact of tariffs.
Reuters reported last week, citing sources, that China’s top leaders and policy makers are considering allowing the yuan, to weaken next year to mitigate the impact of punitive trade measures.
The CEWC summary kept a pledge to “maintain the basic stability of the exchange rate at a reasonable and balanced level.” Readouts from 2022 and 2023 also included this line.