Sources: China Targets 4% Budget Deficit of GDP in 2025, a Record High

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Chinese leaders have agreed to raise the budget deficit for 2024 to 4% of GDP, the highest on record, while maintaining an economic growth target of around 5%, according to two sources familiar with the decision. The revised deficit target marks an increase from the original 3% goal for next year and aligns with a "more proactive" fiscal policy discussed at the recent Politburo meeting and Central Economic Work Conference (CEWC).

The decision, though not yet officially announced, will likely involve an additional 1.3 trillion yuan ($179.4 billion) in spending, funded through off-budget special bonds.

These targets are generally confirmed in March at the annual parliament meeting, and adjustments could be made before then. The Chinese government, facing challenges from a slowing economy, will increase fiscal stimulus to counter potential U.S. tariffs on Chinese exports, particularly as Donald Trump is expected to return to the White House in January. China’s growth target for 2025 remains at 5%.

The CEWC summary highlighted the need to maintain steady economic growth and expand government debt next year. It also hinted at a shift in monetary policy to an "appropriately loose" stance, increasing expectations of interest rate cuts and more liquidity support. This shift follows years of prudent monetary policy, which coincided with a significant rise in overall debt across the government, households, and companies.

With the economy struggling due to a property crisis, high local government debt, and weak consumer demand, China is expected to rely heavily on fiscal stimulus in 2024. Additionally, policymakers are considering allowing the yuan to weaken to counter the impact of U.S. tariffs. Despite this, the CEWC reaffirmed a commitment to "maintaining the basic stability" of the exchange rate.

Paraphrasing text from "Reuters" all rights reserved by the original author.