Facing rising pressure from new U.S. tariffs and a prolonged property slump, China increased public spending by 5.6% in the first quarter of 2025—the fastest pace for any Q1 since 2022. The move signals Beijing’s shift to a more aggressive fiscal policy as global trade headwinds begin to weigh on growth.
Surging Outlays Amid Trade War Concerns
Combined spending under China’s two main fiscal budgets—the general public budget and the government fund account—reached ¥9.26 trillion ($1.3 trillion) in Q1 2025. That figure represents nearly 22% of total annual planned outlays, a faster rate than the 21.6% spent during the same period last year.
Economists say this early front-loading of fiscal support reflects rising concern over a sharp slowdown in export demand, particularly after the U.S. tariff announcement on April 2. The risk is compounded by continued deflationary pressures and persistent weakness in the real estate sector.
“Fiscal policy will turn from a growth drag last year to a major driver this year,” said Lisheng Wang, economist at Goldman Sachs Group Inc., while warning that the measures may not fully offset external shocks.
Growth Expectations Downgraded
Despite modest growth in Q1, several global banks have cut China’s 2025 growth forecast to 4% or lower, well below Beijing’s 5% target. Analysts attribute the downgrade to the likely decline in exports once current order backlogs clear, alongside reduced momentum from consumer trade-in programs.
At the same time, China’s broad budget deficit widened 41% year-on-year to ¥2.3 trillion, as spending outpaced falling revenues.
Revenue Pressures from Property and Tax Declines
The ongoing property market downturn remains a major drag on local government revenues. Land sales shrank 16.5% year-on-year in March, while real estate-related income dipped by 0.1%. Total government revenue across both budgets fell 2.6%, as tax income declined for the second consecutive month and non-tax income growth slowed.
In response, local authorities have accelerated bond issuance programs to refinance hidden debts and ease liquidity strains. Officials are also considering faster tax rebate payouts to help exporters absorb tariff-related losses.
More Stimulus Likely in Pipeline
Policy observers expect more aggressive easing in the months ahead. The Politburo’s upcoming meetings and possible National People’s Congress actions could include:
- Extra-budget bond approvals
- Central bank interest rate cuts
- Lower reserve requirement ratios (RRRs)
- Direct bond purchases to support fiscal expansion
These actions would align with China’s broader goal to stabilize economic conditions and prepare for deeper structural adjustments in trade, technology, and housing.
Source: Bloomberg
