MNI: China Borrowing Plan Keeps Policy Space Given Trade Risks
MNI (BEIJING) - China’s announcement of CNY2.9 trillion in additional borrowing this year leaves space for further stimulus as the country braces for trade war with the U.S., policy advisors told MNI.
This week’s National People’s Congress allocated a total of CNY11.86 trillion in new government borrowing, up from 2024’s CNY8.96 trillion, while maintaining a growth target of around 5% a year.
“The intensity reflects a proactive stance but ensures policymakers have additional space if needed to defuse local financial risks and tackle a trade war escalation with the U.S.,” said Zhang Yiqun, director at a fiscal studies institute affiliated with Jilin province’s finance department, adding that recent developments in artificial intelligence following the introduction of DeepSeek have boosted confidence in the domestic outlook.
This year’s Congress has prioritised consumption to offset the expected impact of U.S. tariffs on exports, said Liu Xiangdong, a researcher at the China Center for International Economic Exchanges.
The borrowing plans would raise the fiscal-deficit-to-GDP ratio by 100 basis points to about 4%, releasing CNY5.66 trillion, add CNY1.3 trillion of ultra-long-term special treasury bonds and CNY500 billion of bank-capital-replenishing-specified treasuries. They also include raising the quota for project-backed local government special bonds to CNY4.4 trillion from the previous CNY3.9 trillion. (See MNI INTERVIEW: China Needs Further CNY3 Trn To Keep 5% GDP)
Total government borrowing should amount to roughly 10% of GDP, surpassing market expectations and underscoring a strong commitment to boosting domestic demand, said Lian Ping, chairman at the China Chief Economist Forum.
"Multiplier effects will see the CNY5.66 trillion of deficit funds generate at least 1.5 times that in bank credit and private investment," he noted.
Deficit funds will help support central government's transfer payments to localities, given a likely continuing nationwide tax revenue declines, which dropped by 3.4% y/y last year, Zhang said.
Fiscal spending will prioritise areas increasing public well-being, such as education and healthcare, said Zhao Xijun, co-dean of the China Capital Market Research Institute at Renmin University.
TREASURIES
Prioritising consumption took priority over investment in the Government Work Report. Special treasury support for the consumer trade-in programme was increased to CNY300 billion out of the total CNY1.3 trillion, from last year’s CNY150 billion out of CNY1 trillion. (See MNI: Special Treasuries To Boost China's Consumers In 2025)
Lian said another CNY300 billion from the CNY1.3 trillion would be used for urbanisation and rural revitalisation, while the rest is reserved for national-level infrastructure.
The other CNY500 billion in special treasuries meant for replenishing major state-owned banks’ core capital is expected to be able to drive additional lending of over CNY4 trillion, which should boost liquidity for stock and bond markets. (See MNI: PBOC To Buoy Assets, As Stocks, Property Added To Mandate)
More funds could eventually be authorised for both boosting bank capital and financing the trade-in programme, said Zhang.
Growth should start the year strongly, reaching as high as 5.2% in Q1, and possibly 5.3-5.5% for Q2 and Q3 -- the peak season for investment, and when consumption should also be bolstered by two major week-long holidays -- before slowing in Q4, Zhang said.
“The economy has the potential to grow about 5.2-5.3% this year,” he said.
Zhao was less optimistic. A target of 5% will not be easy to achieve, he said, pointing to greater external uncertainties amid mounting trade barriers and geopolitical tensions. (See MNI: China To Ensure 5% GDP Amid Export Uncertainty: CASS's Yu)