China's leadership has decided to increase the country's budget deficit to 4% of its gross domestic product (GDP) for the upcoming year, marking the highest deficit target on record. This move is part of a strategy to maintain an economic growth target of around 5%, according to two informed sources.
The revised deficit target is a significant rise from the initial goal of 3% of GDP for 2024. This adjustment aligns with a shift toward a "more proactive" fiscal policy, as indicated by officials following the December Politburo meeting and reiterated during last week's Central Economic Work Conference (CEWC). The targets were set during these meetings but have not been formally announced.
The increase in the deficit by one percentage point of GDP translates to an additional expenditure of approximately 1.3 trillion yuan ($179.4 billion). The sources, who wished to remain anonymous due to the confidentiality of the information, mentioned that the extra stimulus would be financed through the issuance of off-budget special bonds.
Official announcements of these targets are typically reserved for the annual parliament meeting in March, and there is a possibility that they may be revised before the legislative session convenes.
The planned enhancement of fiscal measures for the next year is part of China's strategy to mitigate the anticipated effects of an expected rise in U.S. tariffs on Chinese goods. This comes as Donald Trump is set to return to the White House in January.
Furthermore, the sources indicated that China intends to maintain its GDP growth target at around 5% for 2025, keeping it consistent with the goal for the next year.
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