The size of China's fiscal deficit will increase significantly in 2025, Liao Min, Vice Minister of Finance, told a press conference. He also noted that the rise in the deficit coupled with the increasing size of China's GDP means that total fiscal expenditure will be further increased, and counter-cyclical adjustment will be stepped up to provide support for the sustained recovery of the economy. Liao added that the increase in the fiscal deficit ratio coupled with the multiplier effect of fiscal policy will allow for more bank credit and social capital investment, thereby promoting an increase in effective demand. In addition, there will be more funding to support employment and consumption, as well as scientific and technological innovation, thus promoting economic structural adjustment and a solid push for high-quality development. There remains considerable room for China's central finance to issue debt and expand the deficit. The country's economy still has high growth potential in the medium to long term, the Vice Minister noted.
The government's debt ratio is significantly lower than that of other major economies and emerging markets, making China's fiscal situation healthy and sustainable. Moreover, the government's debt is backed by a large amount of high-quality assets. Additionally, the real interest rate on Chinese government bonds is currently significantly lower than the real growth rate of the country's economy, so issuing government debt is sustainable, Liao said. “The increase in the size of the fiscal deficit is a very important manifestation of the implementation of a more proactive fiscal policy,” Li Chang'an, Professor at the University of International Business and Economics in Beijing, told the Global Times.
Li noted that taking the actual conditions of national development into consideration, fiscal policy will play a more significant role this year in stabilizing the country's economic growth, combined with monetary policy and other support policies. Liao noted that the Ministry of Finance (MOF) will increase the amount of government bonds to provide more support for stabilizing growth. It will also expand the scale of ultra-long-term special national bonds to further implement equipment upgrades and consumer goods trade-in programs. In addition, the Ministry will raise the quota for new local government special-purpose bonds, in order to expand effective investment. It will also issue special treasury bonds to support large state-owned commercial banks in replenishing core tier-1 capital, enhancing their ability to lend to the real economy and support the expansion of effective demand and economic structural adjustment, the Vice Minister noted.
Wang Peng, Associate Research Fellow at the Beijing Academy of Social Sciences, told the Global Times that boosting demand and expanding consumption will be priorities in the country's fiscal policy this year. “Increasing employment and people's income through multiple channels will enhance real consumption, and supporting the development of a number of new industries such as elderly services and cultural tourism will foster more and newer consumer industries and scenarios,” Wang said.
The China Daily adds that the government will roll out more stimulus measures to push urban renewal projects this year in a bid to scale up effective investment and shore up domestic demand. The country will accelerate the transformation of aging residential neighborhoods, industrial areas and urban villages, as well as strengthen underlying urban infrastructure, the State Council said during its first executive meeting of 2025. The scope of urban village renewal initiatives has now been extended from 35 urban villages to 300 urban areas nationwide. Over the next five years, underground plumbing and wiring alone will require a total investment of around CNY4 trillion, with an estimated 600,000 kilometers of aging gas, water and heating lines in need of upgrades.
