China’s fiscal stimulus for 2025 is expected to bolster economic growth but will further strain government finances, according to Fitch Ratings. The credit rating agency highlighted concerns over China’s expanding budget deficit and rising debt levels, which prompted its decision to revise the country’s ‘A+’ sovereign rating outlook to negative in April 2024.
The Chinese government has raised its official fiscal deficit target to 4 per cent of GDP in 2025, up from 3 per cent last year, while Fitch’s adjusted estimates place the actual deficit at 8.8 per cent of GDP, significantly higher than the median for ‘A’-rated sovereigns at 2.7 per cent. The widening shortfall is attributed to a decline in revenue—partly due to a structural slump in property-related income and tax cuts.
Fitch estimates that China’s general government debt surpassed 60 per cent of GDP in 2024, rising from 55 per cent in 2023. The figure is expected to approach the high-60s per cent level in 2025 as China absorbs CNY2 trillion of off-balance-sheet local government debt into formal accounts through an ongoing ‘debt swap.’ This will further widen the gap with other ‘A’-category sovereigns, which have a median debt ratio of 57 per cent.
China has increased the local government Special Purpose Bond quota to CNY4.4 trillion in 2025, up from CNY3.9 trillion in 2024. Additionally, the central government will issue CNY1.3 trillion in ultra-long sovereign bonds, up from CNY1 trillion last year, and has earmarked CNY500 billion to recapitalise banks, Fitch said in a release.
Despite the large-scale stimulus, Fitch remains uncertain about the extent of its impact on economic recovery. Public expenditure is set to rise by 1.4 percentage points to 30 per cent of GDP, but direct consumption-boosting measures remain modest. A CNY300 billion consumer goods trade-in programme—double the allocation from last year—has been introduced, but most policies continue to focus on supply-side measures such as industrial investments.
Moreover, local governments will be allowed to use bond proceeds to buy idle land and vacant housing units, though the scale of these transactions remains unclear. Property market weakness, coupled with subdued domestic demand and global trade pressures, presents ongoing challenges to China’s recovery.
To support growth, the People’s Bank of China is expected to ease monetary policy further, implementing interest rate and reserve requirement ratio cuts. Meanwhile, China has lowered its inflation target to 2 per cent for 2025, down from 3 per cent last year, reflecting weak price pressures.
The renminbi is also likely to face further depreciation as China seeks to counter the impact of US tariff hikes. US has raised import tariffs on Chinese goods by 20 percentage points since January, bringing the effective rate close to 30 per cent. Additional trade restrictions remain a possibility, adding to external risks.
The Chinese government has set an ambitious GDP growth target of around 5 per cent for 2025, but Fitch currently projects real GDP growth of 4.3 per cent. While fiscal stimulus will help stabilise the economy, challenges from weak domestic demand, persistent property-sector stress, and external trade frictions may hinder sustainable growth.
ALCHEMPro News Desk (HU)
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