China’s finance ministry plans to enhance fiscal spending, with a proposed 7.2% increase in defence expenditure. The ministry acknowledges that external environmental changes are posing challenges to the economy.
Maintaining a balanced budget in 2025 will be pressured, despite revenue growth from the recovery. However, obstacles like insufficient domestic demand and slow growth in key tax-contributing industries may hinder government revenues.
Uncertainty In Foreign Trade
Uncertainty in foreign trade further complicates the situation. To address these issues, China aims to implement counter-cyclical adjustments and improve its fiscal spending structure, adopting proactive and robust policies as it accelerates fiscal expenditure.
Beijing’s strategy suggests it recognises the difficulty of stabilising economic momentum amid external pressures. We see that rising defence spending reflects both geopolitical caution and a broader emphasis on national security. With this allocation, fiscal room tightens elsewhere, requiring more deliberate choices about where funds flow.
Government revenues are expected to grow, but at a pace that may not be enough to ease budget constraints. Domestic demand remains weak, limiting consumption-driven tax inflows. Meanwhile, industries that contribute heavily to fiscal income are facing headwinds, slowing potential gains from corporate tax collection. This means that despite an overall economic recovery, budgetary pressure remains high.
Foreign trade introduces additional uncertainty. Shifting global supply chains and trade policy adjustments could disrupt export-driven revenue streams. As a response, Beijing aims to use counter-cyclical adjustments—policies designed to offset economic volatility by modifying fiscal expenditures and tax policies accordingly. This approach suggests the government wants to mitigate downturn risks while keeping growth stable.
Planned Fiscal Expenditure
With these factors in mind, planned fiscal expenditure will likely lean towards initiatives that offer measured economic support. Stabilisation efforts will focus on sustaining employment levels and preventing sharp declines in industrial output. The challenge lies in ensuring that this fiscal push does not strain long-term debt sustainability. The need for robust financing mechanisms becomes apparent.
Those watching these developments should assess how increased spending influences broader market stability. How authorities balance fiscal expansion with financial discipline will shape near-term opportunities. Fiscal manoeuvres tend to ripple through multiple sectors, affecting expectations for liquidity and borrowing conditions. If domestic demand continues to underperform, additional policy tweaks may follow.
Markets will be watching closely.
