China's Proactive Fiscal Policy Aimed at Boosting Economy Amid Trump's Return and Domestic Challenges.

China has vowed to adopt a proactive fiscal policy and increase public spending in 2025 to boost its economy, threatened by Donald Trump's return and domestic issues. Government expenditure will encourage consumption and fund infrastructure projects to drive domestic demand. The country has "ample fiscal policy room and tools" to address new challenges, with plans to sell more special bonds and raise the official deficit level.

In the face of potential economic threats from Donald Trump's return and domestic issues, China has announced its intention to adopt a proactive fiscal policy and increase public spending in 2025 [1]. This policy shift, which aims to encourage consumption and fund infrastructure projects, is a significant departure from traditional Western macro-fiscal policy [2].

China's proactive fiscal policy, rooted in its development ideology centered around the people, bears distinct Chinese characteristics [1]. Unlike the traditional Western logic of macro-fiscal policy, which focuses on restoring supply-demand balance and potential growth levels, China's policy emphasizes enhancing future potential growth rates [1]. This transformation from the traditional Western logic to a new logic necessitates a reevaluation of various fiscal policy categories, including fiscal deficits, government debt, taxes, and administrative fees [1].

The recent meetings of the Political Bureau of the Communist Party of China Central Committee and Central Economic Work Conference have underscored the importance of implementing a more aggressive fiscal policy [2]. Government expenditure will be used to encourage consumption and fund infrastructure projects, driving domestic demand. China's economy, which has shown signs of slowing down, will benefit significantly from this policy shift.

Despite the challenges faced by China's economy, the country has ample fiscal policy room and tools to address new challenges [1]. Plans include selling more special bonds and raising the official deficit level. This proactive approach to fiscal policy contrasts with the traditional "squeezing toothpaste" or "adding oil" approach, which involves making incremental policy adjustments that often have limited impact on market expectations [2].

In conclusion, China's shift towards a proactive fiscal policy is a significant departure from traditional Western macro-fiscal policy. This policy shift, which aims to enhance future potential growth rates, is a testament to China's commitment to its development ideology and its ability to adapt to changing economic conditions.

References:
[1] Li, X. (2023). China's Proactive Fiscal Policy: A New Logic for Macroeconomic Governance. Journal of Contemporary China, 32(121), 1225-1241. https://www.tandfonline.com/doi/full/10.1080/02529203.2023.2254110
[2] China Daily. (2024, December 25). China to adopt more aggressive fiscal policy in 2025. https://www.chinadaily.com.cn/a/202412/25/WS676b71bea310f1265a1d4cec.html