Chinese leaders have agreed to raise the budget deficit to 4% of gross domestic product (GDP) in 2025, setting a new record high. The decision, aimed at maintaining an economic growth target of around 5%, was made during the December Politburo meeting and the recent Central Economic Work Conference (CEWC), according to two sources familiar with the matter.
The increase represents a significant rise from the 2024 deficit target of 3% of GDP and aligns with the “more proactive” fiscal policy outlined at the CEWC. The additional spending, approximately 1.3 trillion yuan ($179.4 billion), will be financed through the issuance of off-budget special bonds, the sources revealed.
These fiscal targets, typically announced officially at the annual parliamentary session in March, are subject to revision before the legislative meeting. Neither the State Council Information Office nor the finance ministry responded to requests for comment.
The fiscal expansion is part of China’s preparations to counter the anticipated effects of higher US tariffs on Chinese imports. With Donald Trump returning to the White House in January, his campaign pledges suggest tariffs on Chinese goods could rise above 60%.
China’s summary of the CEWC meetings underscored the necessity of maintaining steady economic growth, increasing the fiscal deficit ratio, and issuing more government debt in 2025, though specific figures were not disclosed. Sources confirmed that the GDP growth target will remain at around 5%, consistent with the government’s existing policy framework.
The Chinese economy has faced multiple challenges this year, including a property crisis, mounting local government debt, and weak consumer demand. Exports, one of the few areas of strength, could face serious disruption under the new US tariff regime, which threatens to reduce profits, impact jobs, and curtail investment. Many manufacturers have already begun shifting production abroad to sidestep the levies.
In response to these challenges, China’s central bank is expected to adopt an “appropriately loose” monetary policy next year, signalling potential interest rate cuts and increased liquidity injections. This marks a departure from the “prudent” stance maintained over the past 14 years, a period during which debt levels surged fivefold while the economy grew threefold.
To further cushion the impact of tariffs, Chinese policymakers are reportedly considering allowing the yuan to weaken next year. However, CEWC summaries retained the commitment to maintaining exchange rate stability at “a reasonable and balanced level,” a pledge echoed in official communications from prior years.
Analysts anticipate that China will rely heavily on fiscal stimulus in 2025 while employing additional measures to stabilise its economy in the face of external pressures.
Faridah Abdulkadiri
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