Navigating China's Fiscal Crossroads: Implications for Investors

The upcoming meeting of China’s National People’s Congress Standing Committee (NPCSC) from April 27-30, 2025, will set the stage for critical fiscal and policy decisions that could reshape investment landscapes in the world’s second-largest economy. With a focus on legislative oversight, rural revitalization, and fiscal accountability, the agenda underscores both opportunities and risks for investors.

Key Agendas and Fiscal Priorities

The NPCSC’s meeting will review progress on the 14th Five-Year Plan (2021–2025), assess amendments to the Legislation Law, and scrutinize the 2024 government final accounts. While the official 2024 fiscal deficit was reported at 3%, the broader fiscal picture—accounting for off-budget expenditures like local government bonds and special treasury bonds—reveals a deficit exceeding 8% of GDP. This divergence highlights a strategy of fiscal restraint on paper but aggressive spending in practice to support growth.

The Government Funds Budget, which finances infrastructure, now accounts for 36.1% of GDP, its highest share since 2020. This allocation prioritizes electric vehicles (EVs), artificial intelligence (AI), and green energy, dubbed the “New Three” growth sectors.

Investment Opportunities: Tech and Green Sectors Lead

The data reveals a clear tilt toward technology-driven infrastructure and green initiatives:
- EVs and Batteries: China’s EV output reached 13 million units in 2024, with investments like BYD’s USD1.3 billion battery plant in Indonesia.
- Renewable Energy: Solar and wind projects surged to USD11.8 billion in 2024, part of a broader USD40 billion energy engagement under the Belt and Road Initiative (BRI).
- AI and Digital Infrastructure: The ZTE 5G-MEC private network in Zhengzhou exemplifies investments in smart grids and industrial automation.

Risks: Fiscal Tightropes and Execution Gaps

Despite the ambitious spending, risks loom large:
1. Land Sale Revenue Volatility: The Government Funds Budget relies heavily on land sales, which fell 9.2% in 2023. If land sales stagnate, infrastructure projects could be underfunded.
2. Debt Sustainability: The broader fiscal deficit exceeding 8% of GDP raises concerns about long-term liabilities, particularly as debt servicing costs for local governments rise.
3. Project Readiness: Past issues of unspent funds (e.g., RMB388.7 billion in 2023) highlight execution risks, especially in less-developed regions.

Strategic Sectors to Watch

1. State-Owned Enterprises (SOEs):
   SOEs dominate large-scale projects, such as PowerChina’s USD5.6 billion subway contract in Saudi Arabia. Investors should focus on SOEs with strong balance sheets and exposure to green energy (e.g., China National Chemical Engineering’s oil refinery projects).

2. Rural Revitalization:
   The NPCSC’s review of rural development laws points to opportunities in agricultural modernization and rural connectivity. Projects like the Dayu Irrigation Group’s digital water systems could attract capital.

3. Tech and Infrastructure Convergence:
   The Shenzhen e-Mobility System, blending EV charging and smart transportation, signals a trend toward integrated urban tech infrastructure.

Conclusion: A Balancing Act for Investors

China’s fiscal strategy in 2025 presents a high-reward, high-risk environment. The 8%-plus fiscal deficit underscores the government’s resolve to prioritize growth through tech and green sectors, where EVs, AI, and renewable energy offer tangible investment avenues. However, the reliance on volatile land sales and the specter of rising debt demand caution.

Investors should prioritize companies with direct ties to the “New Three” sectors, such as EV battery manufacturers (e.g., CATL) and renewable energy firms (e.g., Longi Green Energy). Meanwhile, diversification is key, as execution risks and geopolitical headwinds could disrupt even the best-laid plans.

As the NPCSC meeting approaches, the message is clear: China’s fiscal crossroads offer opportunities for those who navigate its complexities with data-driven precision.