USD/CNH: China's 2025 fiscal deficit target is highest in over three decades - BBH

USD/CNH is consolidating near recent lows around 7.2600. China boosts fiscal spending. In line with consensus, China raised its 2025 fiscal deficit target to the highest in over three decades to around 4% of GDP vs. 3% of GDP in 2024 and left its 2025 GDP growth target unchanged at around 5%, BBH's FX analysts report.

China boosts fiscal spending

"As part of the plan, China will sell 1.3 trillion yuan worth of special sovereign bonds vs. 1.0 trillion in 2024. The extra 300 billion yuan for 2025 will be used to finance a subsidy program for residents' purchases of consumer goods, double the amount from 2024. China also announced 4.4 trillion yuan in local government special bonds for infrastructure and other public investments. This up from 4 yuan trillion in 2024."

"China reiterated its vague pledge to 'vigorously' boost consumption by increasing income and strengthening the social security system. But did not offer specific details. Rebalancing the economy away from investment toward domestic consumption has been an explicit goal of China since the December 2004 Central Economic Work Conference."

"However, three major structural constraints have prevented any meaningful effort to boost the role consumption plays in the economy: low household income levels, high precautionary savings, and high levels of household debt."