Source：Getty Images
China’s economy is under pressure, but Beijing was still projecting 5 percent growth this year at the opening of its National People’s Congress while expecting a record fiscal deficit and continued investment in new technologies. Do the numbers really add up?
Views
99+
Under Economic Pressure, China to Drive Up Debt
web only
前往中文版 調整字體尺寸
On the opening day of China’s National People’s Congress (NPC), the message was one of a powerful country ready for any challenge.
“What we have achieved once again proves that under the strong leadership of the CPC Central Committee with Comrade Xi Jinping at its core and with the dedicated efforts of our people across the country, we can prevail over any difficulty in pursuing development,” proclaimed Premier Li Qiang (李強) to thunderous applause in the Great Hall of the People in Beijing.
As the lingering chill of early spring set in, China was set to convene its annual "Two Sessions" — the NPC and the Chinese People’s Political Consultative Conference (CPPCC) — to determine the country's political and economic direction for 2025.
During the NPC’s opening session on March 5, Li Qiang presented the government’s annual work report, candidly acknowledging the challenges China faces: a sluggish post-pandemic economy at home and renewed trade tensions with the United States., as Donald Trump returned to the White House.
Despite mounting pressures, China has maintained its economic growth target at "around 5 percent," the same as last year.
One figure stands out, however — China's fiscal deficit-to-GDP ratio for 2025 will reach an unprecedented 4 percent, the highest in the country's history.
Why Is China Taking on Record-high Debt?
For decades, China has strived to keep its fiscal deficit below 3 percent. This year marks the first time that threshold has been surpassed. What is the rationale behind this move?
Li announced plans to issue 1.3 trillion yuan in ultra long term special bonds. These funds will be directed toward two major areas. One is the “Two New” initiatives, which are focused on upgrading outdated equipment and consumer goods. The other is the “Two Major” initiatives, targeting investments in national strategic projects and enhancing security in key sectors.
The government will also allocate 4.4 trillion yuan in special local government bonds for infrastructure projects, land acquisitions, the purchase of unsold properties, and the settling of outstanding debts owed by local governments to businesses.
While the official deficit figure is already record-breaking, the actual numbers could be even more alarming.
"China’s real fiscal deficit rate is underestimated," said Wang Guochen (王國臣), an associate research fellow in a division of Taiwan’s Chung-Hua Institution for Economic Research focused on China’s economy. He estimated that China’s effective fiscal deficit rate in 2025 could reach 8.4 percent.
One key reason for the deficit surge is growing uncertainty tied to the return of Trump to the White House.
This year marks the final stretch of China’s 14th Five-Year Plan. While Li’s report emphasized the successful completion of government objectives, it could not obscure the reality of China’s prolonged economic slowdown over the past five years.
In the past year, Beijing has rolled out several rounds of stimulus policies, including efforts to resolve the real estate supply glut and tackle hidden local government debt. These measures have had only a limited impact, however, failing to revive business investment or boost consumer spending.
Now, the U.S. has announced a 20 percent tariff on all Chinese goods — an immediate blow to exports, which contributed 5 percent of China's GDP last year.
Facing these headwinds, China has no choice but to take more aggressive steps to stimulate domestic demand.
Business Incentives that May not Hit Home
In fact, China’s leadership shifted its focus at the end of last year to stimulate consumption. Ahead of the Two Sessions, the official Communist Party journal Qiushi (求是) published excerpts from Chinese President Xi Jinping’s speech at last year’s Central Economic Work Conference.
Given the mounting pressures at home and abroad, Xi emphasized the urgency of expanding domestic demand, saying it was “crucial not only for economic stability but also for economic security. It is not a stopgap measure but a strategic imperative.” He stressed the need to address the weaknesses in consumption so that domestic demand could become the "driving force" and "anchor of stability" for economic growth.
But will the government’s aggressive fiscal policies be enough to revive domestic demand? The CIER’s Wang remains skeptical. His concern: private enterprises may see opportunities in the policies, but may not truly benefit from them.
Given that banks still have limited resources, Wang said, they are likely to prioritize lending to sectors supported by the central government, particularly those linked to "new productive forces." The government work report explicitly highlighted industries such as biomanufacturing, quantum technology, embodied intelligence, and 6G as targets of its support.
Wang also suggested that state-owned enterprises (SOEs) were more likely to secure loans than private enterprises because they carry a lower credit risk. As a result, non-tech industries, the service sector, and private companies may continue to struggle to obtain financing.
Cross-Strait Policy: Keep a Close Eye on Xi Jinping
Unlike its economic policies that introduced some new elements, this year’s government work report contained little change in its Taiwan policy. The only small addition was a reference to "improving mechanisms and policies to promote economic and cultural exchanges and cooperation across the Taiwan Strait."
Chang Wu-Ueh (張五岳), director of Tamkang University’s Center for Cross-Strait Relations, said the phrasing was aligned with Xi’s strategy of "promoting integrated development" aimed at attracting more Taiwanese talent to China. At the same time, it also reflected Beijing’s desire to mend cross-strait economic ties that have deteriorated in recent years.
Chang cautioned, however, against overanalyzing the report, noting that "never in history has a major shift in Taiwan policy been first revealed in the government work report."
Instead, he stressed that any significant policy direction would come directly from Xi and suggested that greater attention be paid to Xi’s remarks in the coming days as he attends deliberations with provincial delegations at the Two Sessions.
Another crucial factor could be that this year is the 20th anniversary of China’s Anti-Secession Law. Will Beijing hold a commemorative symposium? And if so, will it follow the usual protocol and have National People’s Congress Standing Committee Chairman Zhao Leji deliver the speech, or will Xi take the stage himself? If Xi were to speak, it would be a significant development.
In cross-strait affairs, the dynamics of the Taiwan Strait ("small cross-strait relations") are always influenced by the broader U.S.-China relationship ("big cross-strait relations").
Trump has already expressed interest in meeting with Xi, with the Wall Street Journal reporting a possible summit in June. Should such a meeting materialize, the key question will be how Beijing articulates its Taiwan policy in that setting.
Have you read?
Trump 2.0: Three Factors Impacting China-Taiwan Relations
Jack Ma's Return Reveals China's Global Tech Ambitions
Chinese Economist: Musk Will Save China From High Trump Tariffs
Translated by Luke Sabatier
Uploaded by Ian Huang
Subscribe to CWE Newsletter (every Thursday)
Stay abreast of what's happening in Taiwan with our weekly digest.