For 2024, Beijing has decided to raise its public deficit to a record level of 4% of GDP, while maintaining a growth target of around 5%, according to information obtained by Reuters. A strategic response to internal economic pressures and the threat of new American trade sanctions, as Donald Trump prepares to return to power.
Chinese leaders agreed last week to raise the budget deficit to 4% of gross domestic product (GDP) for next year, an unprecedented level, while maintaining an economic growth target of around 5%, according to two sources close to the case.
This new budget plan exceeds the initial target of 3% of GDP for 2024. It is part of a “more proactive” fiscal policy announced by senior officials after the Politburo meeting in December and the Central Conference on Economic Labor (CEWC) last week. The goals, although approved, have not been officially revealed.
The one percentage point increase in GDP in spending amounts to about 1.3 trillion yuan ($179.4 billion). Additional financing will be provided by the issuance of special off-budget bonds, said the two sources, who requested anonymity because they were not authorized to speak publicly.
These targets are usually announced at the annual meeting of Parliament in March and could still evolve between now and then.
A response to economic pressure
This stronger budgetary impulse is part of Beijing's preparations to counter the impact of a planned increase in US tariffs on Chinese imports, as Donald Trump is due to return to the White House in January. Both sources said China would maintain an unchanged growth target of around 5% for 2025.
A summary published by state media after the CEWC stressed that it was “necessary to maintain stable economic growth”, increase the fiscal deficit ratio and issue more public debt next year, without however mention precise figures.
Multiple economic challenges
The world's second largest economy, China went through a difficult year marked by a severe real estate crisis, high local government debt and sluggish domestic demand. Exports, one of the few positive points, risk suffering the consequences of American customs tariffs, which could exceed 60% if Donald Trump implements his campaign promises.
The threats from the US president-elect have shaken China's industrial sector, which exports more than $400 billion to the United States each year. Faced with these risks, many manufacturers have started to relocate their production to avoid taxes.
Chinese exporters fear that these measures will further reduce their margins, weakening employment, investment and economic growth. This could worsen problems of industrial overcapacity and deflationary pressures, analysts say.
Monetary easing expected
Summaries of the CEWC and Politburo meetings also indicated that China's central bank would adopt an “appropriate and accommodative” monetary policy, pointing to further interest rate cuts and liquidity injections.
This decision breaks with the “cautious” posture maintained for 14 years, a period during which total debt – including that of households, businesses and the State – has multiplied by more than five, while the economy only grew by a factor of three.
If China is expected to rely largely on fiscal stimulus next year, other levers could be mobilized to cushion the effects of trade sanctions.
Reuters reported recently that leaders are considering letting the yuan weaken in 2024 to compensate for punitive U.S. measures. However, the CEWC summary reaffirms the commitment to “maintain the fundamental stability of the exchange rate at a reasonable and balanced level”, a formula identical to the minutes of the previous two years.
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