China raises budget deficit to all-time high

China’s leaders agreed last week to raise the budget deficit to 4% of gross domestic product (GDP) next year, the highest level on record, while maintaining a target of economic growth of around 5%, two people familiar with the matter told Reuters.

China’s new deficit plan compares with an initial target of 3% of GDP for 2024 and is in line with a more proactive fiscal policy outlined by senior Chinese officials after a meeting of the Communist Party’s Politburo in December 2024 and the Central Economic Work Conference last week, where targets were agreed but not formally announced.

The increase in deficit-to-GDP spending amounts to about 1.3 trillion yuan ($179.4 billion), with two sources telling Reuters that further stimulus would be financed by issuing special off-budget bonds.

These targets are usually not formally announced until the annual parliament meeting in March 2025, and could still change before the legislative session, Reuters reported.

The stronger fiscal stimulus planned for next year is part of China’s preparations to counter the impact of an expected increase in U.S. trade tariffs on Chinese imports when Donald Trump formally returns to power in January 2025.

China will keep its GDP growth target unchanged at around 5% in 2025, the two sources told Reuters.