China’s Fiscal Flex: A Promise to Rev Up Growth in 2025

2024 wasn’t exactly a banner year for China. Consumer prices flatlined, factory prices stayed stuck in reverse, and the housing market couldn’t seem to find its footing. But if there’s one thing Beijing loves, it’s the art of the pivot.

Vice Finance Minister Liao Min recently hinted that 2025 is shaping up to be the year China pulls out all the stops. “We have sufficient policy space and tools,” Liao said, channeling quiet confidence into what’s starting to look like a major fiscal reset.

Let’s unpack what that means—and why it matters.

The Big Numbers

China’s government has been clear about its goals: prop up growth, stabilize prices, and get the economic engine humming again. Here’s how they’re planning to make it happen:

• Budget Deficit Expansion: Beijing is reportedly eyeing a budget deficit of 4% of GDP in 2025. For context, that’s a significant jump, signaling a willingness to dig deeper into fiscal reserves to spur growth.

• Special Bonds: Local governments went hard in 2024, issuing 4 trillion yuan ($545.5 billion) in special bonds, with 2 trillion yuan earmarked for cleaning up hidden debt. Next year? Expect even more aggressive borrowing to fund infrastructure projects and consumer incentives.

Why the Stimulus is Necessary

The consumer price index (CPI) barely moved in 2024, rising just 0.2% for the year—far below the 3% target. Factory prices? They’ve been in deflationary territory for 27 straight months. December’s numbers were equally underwhelming, with CPI up a meager 0.1% year-over-year and core inflation (excluding food and fuel) nudging up to 0.4%.

This lack of inflation isn’t just an economic curiosity—it’s a flashing red light for policymakers. Weak domestic demand is the culprit, driven by a toxic cocktail of job insecurity, a prolonged housing slump, and trade tensions with the incoming Trump administration. Even with discounts and promotions flooding the market, cautious consumers are holding back. Some are opting to rent big-ticket items like luxury handbags and cameras instead of buying them outright.

“The property sector downturn hasn’t ended, which continues to weigh on sentiment,” said Zhang Zhiwei, president and chief economist at Pinpoint Asset Management.

What’s Actually Working?

There are faint glimmers of hope. Core inflation’s slight rise in December and the slower pace of factory deflation suggest that Beijing’s stimulus measures are starting to find their mark. But analysts are cautious.

Julian Evans-Pritchard, Head of China Economics at Capital Economics, pointed out that while stimulus is providing some short-term support, it’s not a silver bullet. “With the prop from stimulus likely to be short-lived, we think underlying inflation will drop back again later this year,” he said.

How This All Plays Out in 2025

Beijing’s plan is twofold:

1. Inject Cash into the Economy: From ultra-long treasury bonds to direct consumer incentives, the focus will be on boosting demand. This includes $41 billion in government bonds for equipment upgrades and consumer trade-ins—think autos and appliances.

2. Rebuild Confidence: A stable property market is critical to getting households and businesses back in the game. It’s a tall order, but without it, the effectiveness of fiscal policy will be limited.

The World Bank is cautiously optimistic, recently upgrading its growth forecast for China. But the challenges are real—subdued consumer confidence, structural issues in the housing market, and external pressures from global trade dynamics aren’t going away anytime soon.

What’s Next?

China’s 2025 fiscal playbook is ambitious, but it’s also risky. Will bigger budgets and bolder policies be enough to spark sustained growth, or are we looking at a temporary fix that fails to address deeper economic fractures?

What Do You Think?

Is China’s fiscal strategy bold enough to turn the tide, or are they just kicking the can down the road? Hit reply and let me know your thoughts.

If you found this article worth your time, share it with someone who keeps tabs on the world’s second-largest economy.