China pledges to maintain budget deficit to support economic growth

China has signaled its reliance on fiscal stimulus for the coming year to support growth while grappling with the financial difficulties of local governments.

The Beijing administration pledged to maintain a “necessary” budget deficit and debt levels in a recent announcement.

The official news agency Xinhua, citing the annual Central Economic Work Conference held on December 10-11, reported that China will increase counter-cyclical and cross-cyclical adjustments next year.

The conference’s concluding statement noted, “We will continue to implement a more proactive fiscal policy: We will maintain the necessary fiscal deficit, total debt scale, and total expenditure, strengthen scientific financial management, and optimize the structure of fiscal spending.”

Stimulus packages are expanding

Analysts expect China to implement stronger fiscal stimulus next year. Beijing is projected to keep its budget deficit target near current levels or slightly increase it, in addition to raising debt issuance.

This year, China set a record budget deficit target of about 4% of GDP to support its growth target.

According to Xinhua, policymakers will flexibly deploy various tools, including reductions in banks’ required reserve ratios and interest rates.

Emphasis on domestic demand and innovation

The Beijing administration will also take steps to boost household consumption by adhering to an innovation-driven strategy and accelerating the development of new growth drivers.

The Chinese economy has shown remarkable resilience this year in the face of high trade tariffs imposed by Washington.

Although the country continues to ultimately benefit from the US role as the main source of demand in the global economy, it has diversified its export markets beyond the US.

Trade balances and global pressure

China’s annual trillion-dollar trade surplus is escalating tensions with Europe and other trading partners. The International Monetary Fund (IMF) and other observers criticize its production-oriented economic growth model as unsustainable.

Pressure is mounting on Beijing to take greater steps to increase domestic consumption and contribute more to the global demand for goods and services.