As the global economy braces for potential headwinds in 2025, China finds itself in a unique position to bolster its growth prospects through proactive fiscal policy. With a healthy fiscal situation and ample room for debt issuance, China is well-equipped to navigate domestic and international challenges, as outlined in the recent Central Economic Work Conference. This article explores the fiscal space available to China and the potential implications for economic growth in 2025.



Fiscal Sustainability and Debt Ratio

China's fiscal situation remains healthy and sustainable, with a government debt ratio significantly lower than that of other major economies and emerging markets. According to Liao Min, vice minister of finance, the real interest rate on Chinese government bonds is currently significantly lower than the real growth rate of the country's economy, making issuing government debt sustainable (Source: Ministry of Finance Photo: VCG).

Fiscal Deficit and Expenditure Expansion

The ministry of finance has announced that the size of China's fiscal deficit will increase significantly in 2025, coupled with an increasing GDP, which will further expand total fiscal expenditure. This proactive fiscal policy aims to provide solid support for the sustained recovery of the economy and step up counter-cyclical adjustment efforts (Source: Ministry of Finance Photo: VCG).



Fiscal Policy Tools and Measures

To stimulate growth in 2025, China plans to implement several specific fiscal measures, including:

1. Increase the issuance of ultra-long special treasury bonds and local government special-purpose bonds: The ministry will issue special treasury bonds to support large state-owned commercial banks in replenishing core tier-1 capital, enhancing their ability to lend to the real economy and support the expansion of effective demand and economic structural adjustment (Source: Ministry of Finance Photo: VCG).
2. Optimize the structure of fiscal expenditure: The ministry will optimize the structure of fiscal expenditure and strengthen support for key areas, including pensions, consumption, and new quality productive forces. This will help improve livelihoods and stimulate consumption (Source: Ministry of Finance Photo: VCG).
3. Increase transfer payments to local governments: The ministry will increase transfer payments to local governments to enhance their fiscal capacity, allowing them to implement more counter-cyclical adjustment efforts (Source: Ministry of Finance Photo: VCG).
4. Expand the scope of special bonds in the property market: The ministry will expand the scope of special bonds in the country's property market to drive effective demand, which will help stabilize the property market and support economic growth (Source: Ministry of Finance Photo: VCG).
5. Raise the quota for new local government special-purpose bonds: The ministry will raise the quota for new local government special-purpose bonds to expand effective investment, which will support infrastructure development and stimulate growth (Source: Ministry of Finance Photo: VCG).



Conclusion

China's ample fiscal space, coupled with a proactive fiscal policy, positions the country well to bolster economic growth in 2025. By expanding fiscal spending, increasing the fiscal deficit ceiling, and implementing targeted measures to reinvigorate private sector investment and household consumption, China can navigate domestic challenges and global economic uncertainties. With a healthy fiscal situation and a strategic focus on domestic demand, China is poised to maintain steady economic growth in the coming year.