Analysis: China Tables Fiscal Salvo for Flagging Domestic Demand

[para. 1] China has announced a GDP growth target of "around 5%" for 2025, similar to last year, while also projecting a record-high budget deficit to indicate forthcoming fiscal stimulus. This approach signals Beijing's intent to combat economic challenges such as the unstable real estate market and weak consumer confidence. [para. 2] Fiscal spending has been spotlighted as a primary tool to address these issues, which are crucial for achieving China's growth goals amid growing global uncertainties. The increased fiscal spending is expected to help navigate these challenges effectively.

[para. 3] The global trade environment remains complex, further strained by continued U.S. tariffs on Chinese imports. Since President Donald Trump's administration, a cumulative 20% extra tariff has been imposed, with potential future increases creating a drag on China's exports, a critical growth driver. These challenges necessitate a stronger focus on domestic markets to bolster economic growth. [para. 5] Analysts agree that domestic markets need to play a bigger role, with fiscal stimulus targeting consumer confidence and spending power. This was underscored in a government work report delivered by Premier Li Qiang at China's Two Sessions, one of the country's key political events.

[para. 7] The government has raised its deficit-to-GDP ratio target from 3% to a record 4%, reflecting a more proactive fiscal policy stance. The projected deficit will grow from 4.06 trillion yuan ($570 billion) to 5.66 trillion yuan, with the central government taking a larger share of financing responsibility. [para. 8] Additionally, more transfer payments are promised to local governments to address fiscal imbalances, strengthening local economic growth potential, as analyzed by China Chengxin International Credit Rating Co. Ltd.

[para. 11] A key government priority is boosting domestic consumption through policies increasing personal incomes and social security, as detailed by Premier Li. Measures include raising the minimum and basic pension benefits for certain populations, benefiting around 320 million individuals. [para. 14] Also, fiscal spending for rural and non-working urban residents' medical insurance will be increased, contributing to broader efforts in enhancing spending power and domestic demand.

[para. 16] China's quota for ultra-long special treasury bonds is set at 1.3 trillion yuan, up from 1 trillion yuan previously. 300 billion yuan will be used to support trade-in programs for consumer goods, boosting retail sales. Analysts estimate a 1.2 percentage point acceleration in retail growth, adding over 600 billion yuan to this year's sales.

[para. 18] Efforts to stabilize the real estate market are also underway, with the government setting a consumer price index (CPI) growth target of around 2%, indicating a focus on managing deflationary pressures. [para. 19] The quota for local governments' special-purpose bonds has been increased to aid property market stabilization by purchasing unused land or properties, thus helping reduce developers' housing stocks.

[para. 22] Preventing debt defaults by real estate companies has become a government priority. Recent actions include a significant loan agreement between Shenzhen Metro Group Co. Ltd. and China Vanke Co. Ltd., one of China's major developers, to aid debt repayment. [para. 23] The recovery of the property market depends on household expectations and developers' liquidity and investment willingness, factors heavily influenced by governmental policies to resolve debt risks and ensure market stability.

[para. 26] Although a set of stimulus measures was introduced last September to stabilize the market, caution remains among analysts regarding persistent downward trends in the housing sector beyond the major cities. This summary reflects China's ongoing efforts to address domestic economic challenges and adapt to global trade environments, focusing on fiscal policies to stimulate growth.