China Increases Budget Deficit for Economic Stability

By Ellen Zhang and Kevin Yao

BEIJING (Reuters) – China pledged on Thursday to increase the budget deficit, issue more debt, and loosen monetary policy to ensure stable economic growth amid rising trade tensions with the United States.

These comments were made during the Central Economic Work Conference (CEWC), held from December 11-12, which outlines the country’s annual economic agenda.

This year's meeting addresses challenges facing the second largest economy, including a severe property market crisis, substantial local government debt, and weak domestic demand. Exports, although slightly stronger, are at risk due to potential higher U.S. tariffs as Donald Trump returns to the White House.

State media reported, "The adverse impact brought by changes in the external environment has deepened," reflecting concerns raised in the CEWC.

The pledges from the CEWC align with one of the most dovish statements from Communist Party leaders in over a decade, emphasizing a willingness to use stimulus measures to mitigate tariff impacts. The Politburo indicated a readiness for an "appropriately loose" monetary policy and more active fiscal measures.

"It is necessary to implement a more active fiscal policy, raise the fiscal deficit ratio, increase the issuance of ultra-long-term special treasury bonds, and increase the issuance and use of special local government bonds," the CEWC summary indicated.

Leaders also committed to reducing bank reserve requirements and cutting interest rates "in a timely manner."

Analysts note this shift in policy demonstrates China’s intent to prioritize growth over financial risks, even if it means increasing debt levels.

During the CEWC, targets for economic growth, budget deficits, debt issuance, and other variables for the upcoming year are set. While these targets are agreed upon during the meeting, official announcements will occur at an annual parliamentary meeting in March.

Previous reports suggested that government advisers recommend maintaining a growth target of approximately 5% for the next year. The CEWC stated the need to "maintain steady economic growth," although no specific figures were given.