China’s Ministry of Finance has announced plans to increase public spending in 2025, focusing on stimulating consumption to bolster economic growth amidst anticipated headwinds from impending US tariffs. This proactive fiscal policy aims to counteract potential negative impacts and maintain economic momentum.
The ministry affirmed its commitment to “expand the magnitude of fiscal spending and accelerate the spending pace,” according to a statement released following a two-day national fiscal work conference. This echoes pronouncements made by top leaders at the annual Central Economic Work Conference, emphasizing the need to raise the budget deficit ratio and issue more government bonds.
The government’s strategic focus includes strengthening support for a consumer product trade-in program and expanding government investment. These initiatives signal a broader shift towards a more pro-growth policy stance for the coming year, as policymakers seek to navigate challenges and ensure economic stability.
Economists project a potential increase in fiscal stimulus equivalent to approximately 2% of GDP. While this represents a notable increase in spending, some analysts believe more aggressive measures may be necessary to address deflationary pressures and revitalize the struggling property market.
Graph depicting China's economic growth
China’s leadership aims to maintain an annual growth target of around 5% for 2025, in line with this year’s objective. To achieve this, they are reportedly considering raising the budget deficit to 4% of GDP, up from the current 3%. This year’s target appears achievable thanks to a series of stimulus measures implemented since September, including interest rate reductions and increased liquidity for banks. The finance ministry underscored its dedication to optimizing spending to enhance people’s livelihoods and encourage consumption, along with measures to prevent unfair fines and fees levied on businesses. This concerted effort signals a strong commitment to proactive fiscal management to support sustainable economic growth.
In conclusion, China’s commitment to increased fiscal spending and targeted measures to boost consumption underscores its determination to navigate economic challenges posed by potential US tariffs and maintain a steady growth trajectory. While the planned stimulus represents a significant step, its effectiveness in countering deflationary pressures and reviving the property market remains to be seen. The government’s ongoing efforts to optimize spending and support both consumers and businesses will be crucial in determining the long-term success of these fiscal policies.
