China's Budget Deficit Increase in 2025

Investing.com – China's top leaders have agreed to increase the country's budget deficit to 4% of gross domestic product (GDP) in 2025, marking the highest level on record, as reported by Reuters on Tuesday, citing unnamed sources.

The decision, made during December's Politburo meeting and the Central Economic Work Conference (CEWC), aligns with plans for a more proactive fiscal policy to support economic growth.

The new deficit target represents a significant rise from the previously projected 3% of GDP for 2024. The additional spending, approximately 1.3 trillion yuan ($179.4 billion), will be partly funded through the issuance of off-budget special bonds. Official announcements on these targets are expected during the annual parliamentary session in March.

Following the announcement, Chinese stocks adjusted some losses. The Shanghai Composite index was slightly lower after previously falling nearly 0.7% earlier in the day. The Shanghai Shenzhen CSI 300 index climbed 0.8%, while Hong Kong’s Hang Seng index reversed earlier losses to gain 0.1%.

China is also maintaining an economic growth target of around 5% for 2024, consistent with this year’s goal, despite ongoing challenges such as the property market crisis, high local government debt, and weak consumer demand.

The CEWC summary emphasized the necessity of steady economic growth, alongside fiscal and monetary measures aimed at stabilizing the economy, as conveyed by a state media summary of the closed-door CEWC.

The Reuters report noted that the central bank plans to adopt an 'appropriately loose' monetary stance, potentially signaling more rate cuts and liquidity injections.

Additionally, China faces looming external risks, such as possible U.S. tariffs exceeding 60% on Chinese goods if President-elect Donald Trump implements his campaign promises. Analysts warn these actions could shrink exporter profits, exacerbate overcapacity, and negatively impact economic growth.

For now, Beijing seems prepared to rely on fiscal stimulus while exploring other measures, including exchange rate adjustments, to counter external pressures.