China announced it has increased its fiscal policy flexibility to navigate domestic and external uncertainties, Finance Minister Lan Fo'an revealed on Thursday. The announcement comes as the country faces heightened economic challenges, including escalating trade tensions with the United States. In response, China has raised its on-budget deficit to 4% of its gross domestic product, marking the highest level since at least 2010.
The decision to adjust fiscal policies coincides with U.S. President Donald Trump imposing increased tariffs on Chinese goods for the second time in a month. Beijing retaliated with targeted duties and restrictions on American companies. In addition, China plans to issue 4.4 trillion yuan in local government special-purpose bonds this year, a 500 billion yuan increase from last year, to alleviate financial pressures on local authorities.
China has also set ambitious economic targets, seeking a GDP growth of around 5% for the year while reducing its inflation target to 2%, the lowest in approximately two decades. Despite achieving a 5% economic growth last year, driven primarily by robust exports, the country continues to grapple with sluggish consumption and challenges within the domestic real estate market.
"China has more room to act on fiscal policy amid domestic and external uncertainties," – Finance Minister Lan Fo'an.
Officials have underscored the effort required to achieve these growth objectives. The government has outlined plans to issue 1.3 trillion yuan ($178.9 billion) in ultra-long-term special treasury bonds in 2025, which represents a 300 billion yuan increase from the previous year. This fiscal maneuver aims to support economic resilience against both internal and global pressures.
The backdrop of these policy adjustments is the National People's Congress (NPC), part of China's "Two Sessions" meeting. The annual gathering serves as a platform for discussing major economic goals and strategies. Aaron Costello, head of Asia at Cambridge Associates, noted that China's approach aligns with expectations for pro-growth measures.
"China has delivered a pro-growth message here at the [National People's Congress], in line with expectations." – Aaron Costello, head of Asia at Cambridge Associates.