China has set its highest deficit ratio in history – 4 per cent this year, allowing for more government spending than under the traditional 3 per cent – as the country looks to expand its fiscal horizons to meet its goals for economic growth and offset US tariff hikes.
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Released along with other major annual benchmarks in the annual government work report, the higher deficit ceiling is seen by analysts as foundational to the policy framework being crafted in response to a resurgent trade war presided over by US President Donald Trump.
“They will use stimulus to offset tariffs, so China can grow at ‘around 5 per cent’ in 2025,” said Larry Hu, chief China economist at Macquarie Capital, referring to the target for gross domestic product growth. Both benchmarks were revealed by Premier Li Qiang on Wednesday during the opening session of China’s top legislature, the National People’s Congress.
The annual political gathering kicked off the day after an additional 10 per cent in tariffs was imposed by Trump on Chinese imports, effectively doubling the 10 per cent levied a month ago.
The single percentage point increase in the deficit ratio represents a rise of 1.6 trillion yuan (US$219.9 billion) in the country’s overall deficit level, Li said, for a ceiling of 5.66 trillion yuan.
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The move aligns with earlier rhetoric from Beijing on adopting a “more proactive” fiscal policy, said Justin Lin Yifu – a professor of economics at Peking University and a delegate of China’s top political advisory body – on the sidelines of the session.