Pictured here is a residential complex under construction in Hangzhou, China, on Dec. 16, 2024.
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BEIJING — China on Wednesday announced plans to raise its fiscal deficit to “around 4%” of gross domestic product, a rare increase that marks a meaningful shift in policy.
The target was confirmed in an official government report for review in parliament on Wednesday.
The new deficit plan, which is up from 3% last year, comes amid an escalating trade war with U.S. President Donald Trump’s administration.
An increase to 4% of GDP had been widely expected. It marks the highest fiscal deficit on record going back to 2010, according to data accessed via Wind Information. The prior high was 3.6% in 2020, the data showed.
In October, Chinese Minister of Finance Lan Fo’an said the space for a deficit increase is “rather large.”
China in November had announced a support package of 10 trillion yuan ($1.4 trillion) over five years — primarily to tackle local government debt problems.
The country’s real estate market slump has cut into a significant source of revenue for local governments, many of which struggled financially even before needing to spend on Covid-19 measures. Meanwhile, lackluster consumption and slow growth overall have multiplied calls for more fiscal stimulus.
China was also expected to triple the quota for special sovereign bond sales to 3 trillion yuan ($410 billion) this year, from 1 trillion yuan in 2024, and increase the year’s quota for special local government bond issuance to 4.5 trillion yuan from 3.9 trillion yuan previously, according to estimates from Macquarie’s Chief China Economist Larry Hu.
