China's budget debt is expected to increase significantly in 2025, driven by plans for a record budget deficit of 4% of GDP and a substantial increase in new debt issuance. The government aims to boost the economy and counter external pressures, leading to a higher overall national debt as a percentage of GDP.
Key Drivers of Increased Debt in 2025:
Record Budget Deficit: China plans to run a budget deficit of 4% of GDP in 2025, an increase from 3% in 2024, to support the economy.
Increased Debt Issuance: The government will issue a record RMB 11.86 trillion in new government debt, which is 2.9 trillion yuan more than the previous year. This includes ultra-long special treasury bonds to fund initiatives like a consumer goods trade-in program and infrastructure projects, as well as special bonds to recapitalize state-owned banks.
Higher Fiscal Expenditure: The expansion in fiscal resources is part of a broader effort to fend off deflationary pressures and mitigate the impact of U.S. tariff threats.
Consolidation of Off-Balance Sheet Debt: The ongoing "debt swap" will bring around RMB 2 trillion of previously off-balance sheet debt onto local government books, further adding to the official debt figures.
Consequences of Rising Debt:
Higher Debt-to-GDP Ratio: The combination of higher deficits and increased debt issuance is projected to drive China's general government debt ratio to the high-60s percent of GDP in 2025.
Increased Reliance on Borrowing: The 2025 budget reflects a growing reliance on borrowing to fund government spending and stimulate economic growth.
Yes, China's budget debt is expected to increase significantly in 2025 as the government expands fiscal spending to stimulate the economy. This will be achieved through a larger official budget deficit and increased issuance of government bonds.
Key
details on China's 2025 debt increase:
· Official budget
deficit: The government's official deficit-to-GDP target was raised to 4% for
2025, up from 3% in 2024. This is the highest on record.
· Expansion of government
bonds: China plans to issue a total of 11.86 trillion yuan ($1.66 trillion) in
new government debt in 2025. This includes quotas for:
o Special local
government bonds: 4.4 trillion yuan.
o Special treasury bonds:
1.3 trillion yuan, with proceeds directed toward major infrastructure projects.
· Significant off-budget
borrowing: Analysts point out that the official deficit only tells part of the
story. With transfers removed, China's total deficit for 2025 climbs to 9.61%
of GDP, a record high. This accounts for borrowing through local government
financing vehicles (LGFVs) and other off-budget channels.
· Debt-to-GDP ratio: The debt-to-GDP ratio for all government debt is projected to continue its rise. In late 2024, it was reported at 68.7%, but a projection for 2025 puts the broader government debt figure, including hidden debt, at 88.0% of GDP.
Why
is China increasing its debt?
The
expansion of debt and fiscal spending is a strategic move to address multiple
economic challenges:
· Stimulating growth:
Amid weak consumer confidence, a struggling real estate sector, and rising
external trade headwinds, China is using fiscal expansion to meet its 2025 GDP
growth target of "around 5%".
· Tackling local
government debt: A portion of the new bond issuance is a comprehensive plan to
help local governments restructure their significant "hidden debt"
accumulated over years of infrastructure financing.
· Boosting domestic
demand: Increased spending is directed at stimulating consumption through
programs and boosting investment in infrastructure and technology.
· Countering US tariffs: Fiscal support is a tool to mitigate the potential drag on the Chinese economy from expected US tariff hikes.
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Comments
China will continue to lose manufacturing as it returns to the US and other countries.
Norb Leahy, Dunwoody GA Tea Party Leader
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