China's proactive fiscal policy: Driving growth, investment and stability

Editor's note: Michael Wang is an anchor for CGTN's "Global Business" program. The article reflects the author's views and not necessarily those of CGTN.

As the world grapples with economic uncertainty, inflation and rising geopolitical risks, China has unveiled a powerful fiscal response that has significant implications both domestically and globally.

While delivering the government work report to China's national legislature, Chinese Premier Li Qiang unveiled the country's shift for the first time to a "more proactive fiscal policy." 

In 2025, China's new government debt will total 11.86 trillion yuan ($1.66 trillion), an increase of 2.9 trillion yuan over last year. 

The Chinese premier characterizes this increase as a "notably higher level of spending." 

The deficit-to-GDP target will rise to 4 percent, up from 3 percent in 2024, exceeding even the COVID-19 pandemic-era levels, signaling a strong willingness to leverage fiscal strength to bolster economic momentum.

As part of this fiscal expansion, a record 1.3 trillion yuan in ultra-long-term special treasury bonds will be issued, a 300 billion yuan increase from the previous year. 

Additionally, 4.4 trillion yuan in local government special bonds will be issued – another record high. 

This enhanced fiscal stance is designed to inject liquidity, lower financing costs and accelerate economic activity to counter uncertainties in the global and domestic landscape. 

It also reflects the government's commitment to boosting investment, upgrading industrial capacity and stimulating domestic consumption.

Ultra-long-term special treasury bonds stand out as a pivotal component in China's fiscal policy toolbox. 

This unique fiscal tool operates outside the regular budget, allowing the Chinese government to fund transformative national projects without impacting the official deficit. 

These bonds are issued specifically to address funding for strategic, long-term initiatives tied to China's modernization. 

Unlike previous special treasury bond issuances, which were used in response to crises, such as recapitalizing banks after the 1997 Asian financial crisis or supporting the economy during the 2020 pandemic downturn, this round of ultra-long bonds is forward-looking, designed to proactively build China's technological capabilities, infrastructure resilience, and food and energy security. 

These bonds, with maturities of 20 years to 30, or even 50 years, provide financing for initiatives that will drive China's technological self-sufficiency, green energy transition and infrastructure modernization. 

They are targeted at key national strategies, including science and technology innovation, integrated urban-rural development, coordinated regional development and high-quality population growth. 

Ultra-long-term special treasury bonds play a key role in China's investment and in maintaining its competitiveness in the global economy for decades to come.

This year's ultra-long bond issuance will be broader in scope and allocated across multiple strategic areas. 

Of the 1.3 trillion yuan in ultra-long-term special treasury bonds, 300 billion yuan will directly support consumer goods trade-in programs, a sum twice the amount allocated last year. 

This year's 300 billion yuan in treasury bonds are aimed at encouraging households to trade in and spend on new energy vehicles, home appliances and digital devices. 

The remaining one trillion yuan will target critical national strategies and industrial upgrades.

A total of 500 billion yuan of special treasury bonds will also be allocated to recapitalize state-owned banks, ensuring greater liquidity and lending capacity. 

A more robust financial system will provide greater credit access for businesses and households, further reinforcing economic activity.

China's more proactive fiscal policy this year will have impacts that extend beyond the country's borders. 

As the largest contributor to global GDP growth, China's economic performance has direct consequences for international markets, trade partners and investors. 

Increased consumption and investment will drive greater imports of raw materials, high-tech components and consumer goods, benefiting commodity-exporting nations, industrial economies and multinational brands. 

The expansion of railways, highways and energy grids means higher demand for steel, copper, lithium and advanced manufacturing equipment, offering a boost to global suppliers.

Some observers question whether China's fiscal expansion is sustainable. 

China's central government debt has remained relatively moderate, with ample fiscal space to expand borrowing without destabilizing its financial system. 

Additionally, China's debt is overwhelmingly domestically held, reducing exposure to foreign currency risks and speculative capital flight. 

Moreover, these bonds are specifically directed at projects that generate long-term economic returns, ensuring that today's investments lay the foundation for future growth.

Observers have also pointed to China's local government debt as a cause for concern, noting that when added to central government debt, the total debt burden appears high. 

While local debt levels have risen, Beijing has demonstrated an ability to manage these liabilities proactively, launching comprehensive debt restructuring programs that have transferred high-risk obligations to more sustainable financing mechanisms. 

The central government's expanded fiscal role, including increased transfer payments to local governments, has reduced the reliance on borrowing at the local level. 

Moreover, recent policy shifts allowing local governments to use special-purpose bonds for debt repayment rather than just new projects signal a more sustainable debt path. 

Another key difference between China and leveraged economies elsewhere is that China's debt is linked to productive assets, such as transportation networks, industrial parks and technology hubs, which drive future economic output.

China has the ability to deploy fiscal tools in a coordinated, forward-looking manner. 

The central government has both the financial flexibility and strategic discipline to implement economic interventions when needed. 

The shift for the first time in 14 years from a "prudent monetary policy" to an "appropriately accommodative monetary policy" enables fiscal stimulus to be complemented by monetary easing and liquidity support. 

Moreover, China's 2025 fiscal plan places a strong emphasis on speed and efficiency, ensuring that funds are allocated and deployed as soon as possible. 

Policymakers are taking a "strike fast and strike hard" approach to maximize the economic impact, leaving little room for uncertainty.

At a time when global markets face rising volatility and geopolitical tensions, China's proactive fiscal approach offers a stabilizing force, providing both resilience and opportunity. 

By channeling resources into long-term investments, strengthening financial stability and driving domestic demand, China is reinforcing its role as a key engine of global growth. 

While challenges remain, its capacity to implement decisive, forward-looking policies underscores its position as a vital anchor in an unpredictable economic landscape.