China: Fiscal impulse as large as 1.9% of GDP – Standard Chartered

Official budget deficit set at 4% of GDP for 2025, versus 3% in 2024, signalling fiscal expansion. Our gauge of broad deficit is 9.0% of GDP, 1.9ppt higher than the implemented broad deficit in 2024. However, budget was under-implemented by c.1% of GDP in 2023 and 2024, implying risks for 2025. Implementation is likely to improve on widened use of LGSB proceeds to include home purchases, Standard Chartered's economist report.

Implementation remains key

"Premier Li Qiang proposed a 5% growth target and a budget deficit of 4% of GDP for 2025 at the National People’s Congress on 5 March. Our calculation, based on the official budget numbers and widely accepted fiscal accounting rules, points to a broad deficit of 9.0% of GDP (Figures 1, 2 and 3). Following the same methodology, we estimate the 2024 budgeted and actual deficit at 8.2% and 7.1% of GDP, respectively, implying the budget was under-implemented by around 1% of GDP."

"Specifically, the revenue-spending gap under the broad budget amounts to CNY 12.7tn, compared with the official deficit of CNY 5.7tn (which will be financed by general central and local government bonds). Other financing sources include ultra-long-term special China government bonds (ULT-CGSBs, CNY 1.3tn), local government special bonds (LGSBs, CNY 3.6tn out of the total quota of CNY 4.4tn), and the fiscal stabilisation fund, the carryover fund from previous years and transfers from state capital budgets (totalling CNY 2.1tn)."

"If the 2025 budget is fully implemented, broad revenue would grow 0.2% and spending would grow 8.1%. The fiscal impulse is equivalent to 1.9% of GDP, which could potentially lift growth by 0.9ppt, based on our assumptions on fiscal multipliers. However, we have seen a pattern of under-implementation since 2019. We expect smaller slippage in 2025 due to the widened use of LGSBs, with the fiscal impulse boosting growth by an estimated 0.5-0.7ppt, likely insufficient to fully offset the US tariff impact."