The government set this year’s fiscal deficit target to 5.66 trillion yuan, or around 4% of gross domestic product, according to the annual work report seen by Bloomberg Wednesday.
That’s the highest level since a major tax overhaul in 1994 that revamped the government budget, and roughly in line with an estimate of 4% by economists in a Bloomberg survey. Premier Li Qiang is expected to officially announce the target Wednesday morning as he delivers his report to the national parliament in Beijing.
China has for decades tried to keep the official deficit at no more than 3% of GDP to demonstrate fiscal discipline. Crossing that implicit red line signals President Xi Jinping is willing to take unconventional steps to boost domestic demand as a trade war with Donald Trump threatens exports, which made up nearly a third of the economy’s expansion last year.
The work report presents the first opportunity since Trump took office for top Communist Party leaders to reveal their blueprint for shielding the world’s No. 2 economy from tariffs and investment restrictions. Hours earlier, Beijing continued its cautious response to blanket US levies — hiked by 20% since February — with targeted duties that avoided blowback on China’s economy.
Separately, the country will offer 1.3 trillion yuan of ultra-long special sovereign bonds, after one trillion yuan of such debt was sold last year, according to the report.
An additional 500 billion yuan of special sovereign debt will be sold to beef up capital at state banks so that they can lend more to facilitate economic activities.
Chinese provinces will be allowed to sell another 4.4 trillion yuan of new special local notes to fund infrastructure investment, purchase land and unsold homes, and repay arrears owed to companies. The amount is higher than 2024’s quota of 3.9 trillion yuan.
In total, the government will set a bond quota at 11.86 trillion yuan, 2.9 trillion yuan higher than a year ago.
“The strength of fiscal spending will increase sharply,” the report said.
The special-purpose bonds are not included in the official deficit, but they are closely watched by investors as part of the broad budget deficit to gauge the strength of overall fiscal stimulus.
China has been shifting new borrowing to the central level in recent years due to mounting debt risks at local governments. While outstanding sovereign bonds are less than 30% of national GDP, some economists estimate local debt is as high as 100% of the size of the economy.
Finance Minister Lan Fo’an and other officials have said the central government has “large room” to borrow more and expand the official deficit. Some experts have cautioned against continued accumulation of fiscal deficit in the long run due to concerns over debt servicing burden and inflation risks.
