(Yicai) March 5 -- China has fixed its fiscal deficit target for this year at around 4 percent of gross domestic product, the highest level on record, as part of a “more proactive” fiscal policy aimed at stimulating economic growth.

The fiscal deficit will reach CNY5.7 trillion (USD785 billion) in 2025, widening by CNY1.6 trillion from last year, according to the government work report delivered by Premier Li Qiang at the National People's Congress, the country’s parliament, which opened in Beijing today.

China kept the fiscal deficit ceiling below 3 percent of GDP for a long time, but has repeatedly exceeded it since the Covid-19 pandemic to fuel economic stimulus measures. Last year the ratio was set at 3 percent, with the previous record being 3.6 percent in 2020 at the onset of the pandemic.

This year’s higher target was widely anticipated following the policy direction set at the Central Economic Work Conference last December, which vowed a “more proactive” fiscal stance this year. The move reflects the government’s determination to support the economic recovery, said Luo Zhiheng, chief economist at Yuekai Securities.

A 3 percent ceiling was used globally as a key threshold for fiscal discipline, but it lacks a theoretical basis and many Western countries have long surpassed it, Luo said. Raising the target allows for greater flexibility in economic policy while helping to control hidden debt risks, he added.

According to the Central Economic Work Conference, a “more proactive” fiscal policy also includes issuing additional super-long-term special government bonds, expanding local government special bond sales, and optimizing fiscal spending while paying more attention to protecting people's livelihoods and promoting consumption.   

The government work report shows that China will issue CNY1.3 trillion of ultra-long-term special government bonds this year, an increase of CNY300 billion (USD41.3 billion) from last year. Moreover, the nation plans to issue CNY500 billion of special government bonds earmarked for large state-owned commercial banks to supplement their capital. Finally, the scale of new special bonds issued for local authorities will increase by CNY500 billion to CNY4.4 trillion.

Considering the widening budget deficit and fresh government bonds, China will add CNY11.9 trillion (USD1.6 trillion) in new government debt this year, an increase of CNY2.9 trillion from 2024, as fiscal spending surges.

The NPC and the Chinese People's Political Consultative Conference, known as the Two Sessions, meet each March to consider proposals and set the national agenda for the year ahead.

Editors: Dou Shicong, Emmi Laine