The National People's Congress has approved China's 2025 budget, setting the stage for strategic economic growth. Premier Li Qiang has proposed a growth target of 5% and a budget deficit pegged at 4% of GDP. The fiscal impulse, a notable feature of this budget, is equivalent to 1.9% of GDP and is anticipated to boost economic growth by approximately 0.9 percentage points (ppt). This approval took place on March 5, signaling a crucial step in China's economic strategy for the coming years.
The 2025 budget comes on the heels of a turbulent period marked by under-implementation issues in previous years. In both 2023 and 2024, the budget was under-implemented by about 1% of GDP. For the year 2024, the budgeted and actual deficits stood at 8.2% and 7.1% of GDP, respectively. These figures highlight the challenges faced in fully implementing fiscal plans. The official budget numbers for 2025 suggest a broad deficit of 9.0% of GDP, which is 1.9 percentage points higher than the implemented broad deficit in 2024.
Despite these challenges, there is optimism regarding the improvement in fiscal implementation for 2025. Authorities expect that the widened use of Local Government Special Bonds (LGSBs) will lead to smaller slippage, while also extending their use to include home purchases. This strategic move is expected not only to bolster fiscal implementation but also to address housing market concerns.
The fiscal impulse embedded in the 2025 budget holds significant potential for economic growth. It is estimated to provide a growth boost of between 0.5 and 0.7 percentage points. However, experts warn that this positive impact could be offset by the ongoing effects of US tariffs on Chinese goods. The interplay between domestic fiscal strategies and international trade dynamics remains a crucial factor in China's economic outlook.