World’s Second-Largest Economy Faces Declining Domestic Consumption
China announced on Tuesday the implementation of a "more proactive" fiscal policy for 2025, particularly to support consumption, which remains fragile. This paves the way for an "increase" in the country's budget deficit.
This move is part of a "package" of five measures announced by the Ministry of Finance at the conclusion of a two-day national conference that began on Monday.
The plan also includes "supporting local authorities" and issuing "government bonds."
The world’s second-largest economy is grappling with declining domestic consumption and financial pressures due to the ongoing real estate crisis and uncertainties in international trade.
In recent months, Beijing has intensified its support measures, including lowering interest rates and raising debt ceilings for local governments.
China’s Finance Minister, Lan Fo'an, told state broadcaster CCTV that the "package" of new measures would enable the country to "enhance consumption" and "strengthen local financial resources."
The ministry also plans to increase certain social benefits, bolster "business rescue" initiatives, and ease export regulations.
The announcement follows a series of major economic meetings held in early December that focused on stimulating domestic consumption.
Simultaneously, China’s leadership, including President Xi Jinping, pledged to adopt a "moderately accommodative" monetary policy, according to CCTV.
Yu Su, chief economist at the Economist Intelligence Unit, commented that the measures announced by the finance minister "are not new at all... but it is encouraging to see the budgetary efforts being directed toward factors affecting economic dynamics."
He added that the government "has not explicitly detailed how these resources will be used to stabilize the real estate market," noting that "this will likely be one of the primary priorities for local governments."
Beijing is targeting GDP growth of approximately 5% in 2024, a figure that political leaders assert is achievable.
The International Monetary Fund (IMF) projects weaker growth of 4.8% in 2024, followed by a further decline to 4.5% in 2025.
