China Vows Bigger Fiscal Spending to Boost Consumption Next Year
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China Vows Bigger Fiscal Spending to Boost Consumption Next Year
Bloomberg News
4 min read
(Bloomberg) -- China signaled more public borrowing and spending in 2025 with a shift of policy focus to consumption, stepping up stimulus to recharge growth ahead of looming US tariffs.
Top officials led by President Xi Jinping vowed to raise the fiscal deficit target next year in an announcement made following a two-day huddle of the Central Economic Work Conference in Beijing, according to China Central Television. Policymakers will also deliver cuts to interest rates and the reserve requirement ratio for banks “at an appropriate time,” it said.
China will make “lifting consumption vigorously” the top priority in 2025, along with other goals meant to stimulate overall domestic demand, the state broadcaster reported after the meeting that sets the economic agenda for the coming year.
While the tone of the meeting is very supportive of growth, it lacks specific steps to raise consumption, said Larry Hu, head of China economics at Macquarie Group Ltd.
“I don’t think the government will hand out money to consumers directly,” he added. “It’s more likely the government will be spending more. China will leverage up central government and increase public spending, so that overall demand can be lifted. That’s the big strategy.”
Chinese stock futures fell, with contracts on the Hang Seng China Enterprises Index down 1.1% as of 8:08 p.m. local time. The offshore Chinese yuan also stayed higher by about 0.1% versus the dollar, with the pair trading at 7.2743.
The language used at the meeting was unusually direct, punctuated by references to specific policy tools like the deficit ratio. It confirms a commitment made at the December huddle of the decision-making Politburo earlier this week to pump more stimulus into the economy, by shifting the monetary policy stance for the first time in 14 years to a “moderately loose” strategy.
Officials also made a rare — albeit indirect — acknowledgment of the prolonged deflation plaguing China, vowing to “ensure the overall stability of employment and prices.” Prices across the economy have been falling for six straight quarters, the longest streak this century.
“Top leaders are now prioritizing boosting consumption and investment in 2025, shifting focus from the industrial upgrading and innovation that dominated the communique for 2024,” said Bruce Pang, chief economist for Greater China at Jones Lang LaSalle Inc. That “pivot underscores the pressing need to enhance domestic demand to better navigate external uncertainties.”
Risks Ahead
China’s economic outlook for next year and beyond is increasingly uncertain, even though the work conference reaffirmed that it’s on track to hit the official growth target of “around 5%” this year.
The threat of a new trade war with the US after the reelection of Donald Trump means exports will probably stop being a major growth driver. Domestic challenges are also piling up.
Consumer and business confidence remains sluggish, contributing to persistent deflation. A prolonged housing downturn shows no sign of bottoming out.
Officials rolled out a flurry of stimulus measures since late September including rate cuts and government subsidies for purchases of cars and home appliances. But the measures so far haven’t been enough to reverse weakening confidence among households and companies.
What Bloomberg Economics Says...
“Policy in 2025 will pivot to add support for the economy. The signals reinforce our view on the outlook for next year. That is, growth still looks set to slow, with stimulus providing a cushion.”
— Chang Shu, David Qu and Eric Zhu. For full analysis, click here
On consumption, the meeting offered little detail on concrete policy actions. Officials mentioned that a “special campaign” to boost consumer spending is in the works but didn’t elaborate further. They also vowed to expand an existing program that encourages households to trade in old consumer goods, which many economists doubt will have a sustainable impact.
Alongside a higher budget deficit, China will also increase the issuance of ultra-long special treasury bonds and local government special notes next year, which are important sources for infrastructure investment and other public spending.
The meeting didn’t provide details on the possible timing of further monetary easing. Economists had been expecting a cut to the RRR — which will free up money for banks to lend and invest — by the end of this year, as signaled by the central bank earlier. Forecasts generally see rate cuts as early as next year.
“All the policy measures are in line with our prior expectations,” said Raymond Yeung, chief economist for Greater China at Australia & New Zealand Banking Group Ltd. “Now the question is how much.”
Details such as the growth target or the government’s budget will only be unveiled in March during the annual legislative sessions.
“I take the messages from this conference and the Politburo meeting positively,” said Zhiwei Zhang, President at Pinpoint Asset Management. “The shift of policy this week is clearly more significant than what took place in the last week of September.”
