China's fiscal deficit to widen in 2025

China’s fiscal deficit to gross domestic product ratio will be widened in 2025, the vice minister of finance said at a press conference Friday. Given the continuous growth of the country’s economy, this implies a significant increase in the size of the fiscal deficit and a big hike in spending.

The direction of this year’s fiscal policy is clear and well-defined, taking into account the need for greater countercyclical adjustments, Liao Min said. Policies will be proactive while taking the medium- to long-term sustainability of the fiscal situation into account. No specific figures were given.

A more pro-active fiscal policy can be expected in the future, with an emphasis on the three aspects of magnitude, efficiency and timing, Liao said.

In terms of magnitude, policies will be fully leveraged to ramp up spending, Liao said. There will be an increase in transfer payments to local governments and in the issuance of larger-scale government bonds, including ultra-long-term special treasury bonds and local government special bonds.

Last year’s 2 trillion yuan (US$273 billion) debt-swap bond quota was fully issued by Dec. 18 and this year’s quota of 2 trillion yuan has already started to be issued, he said.

Local governments can allocate funds raised through special bonds this year for purchasing land reserves and the acquisition of unsold properties for use as affordable housing, said Lin Zechang, director general of the Ministry of Finance’s (MOF) comprehensive department. The effects of these two policies are expected to gradually manifest in 2025.

Regarding efficiency, efforts will focus on optimizing the structure of expenditure, with an emphasis on improving people’s livelihoods and boosting consumption, Liao said. Support for employment will be enhanced through increasing people’s income, improving social security, and nurturing new consumer industries.

With an early introduction of the policies, expenditure will be turned into actual spending at a faster pace, driving additional social investment and maximizing policy effectiveness.

This year, there will be increased coordination between fiscal and monetary policies so as to enhance the combined effect of these measures, Liao said. By leveraging public funds, it is hoped to stimulate more credit and social capital investments, restore market confidence, and thereby boost domestic demand and contribute positively to steady economic development.