BEIJING – As Mr Elon Musk targets US$1 trillion (S$1.34 trillion) in cuts to the US government’s outlay in 2025, China is facing a different problem: It is struggling to spend enough money to get the economy moving again.
Over the past six years, the combined expenditure in the Chinese government’s two major budgets fell short of the annual plan by at least 1.4 per cent, according to Bloomberg calculations based on official data. That is largely because the authorities are struggling both to generate income and find enough viable investment projects that can produce a decent return.
Despite single-party political rule that might suggest a lack of roadblocks to enacting policy, China’s system has been tripped up by local officials not following Beijing’s directives. In some cases, the regional authorities are concerned about how they will be evaluated on investment returns, according to Morgan Stanley analysis. Chinese President Xi Jinping’s broad anti-corruption campaign may also continue to weigh.
With US President Donald Trump jacking up tariffs on China, it is now more important than ever to meet spending targets. The central government signalled determination to address the issue when Premier Li Qiang last week said cities will be given greater sway over using money to prop up the property market – the most important drag on domestic growth. Beijing is also relaxing guidelines for how money raised from local bond issuance can be used.
“The policy will have big implications,” said Mr Ding Shuang, chief economist for Greater China and North Asia at Standard Chartered. “It’s working towards the goal of fully implementing the budget.”
Mr Ding estimates that China underspent its budget projections by about 1 per cent of gross domestic product (GDP) in 2023 and 2024, and says it may halve its fiscal slippage in 2025. “The authorities need to fill the gap left by the housing slump,” he said.
At the annual gathering of the National People’s Congress, China’s Parliament, the government set an ambitious economic growth target of about 5 per cent for 2025. It also committed to a record budget deficit of 5.66 trillion yuan (S$1.04 trillion), or around 4 per cent of GDP.
The authorities at the gathering provided details on unglamorous but important measures to get local officials to spend money, particularly in the ailing property sector. A solution rests on fixing the economics of a plan announced in October 2024 that allowed the provincial authorities to use special bonds to buy unsold homes and undeveloped land.
The hope is that the property-rescue programme finally gives developers enough cash to pay off arrears, finish stalled projects and even consider investing again. For households that saw an estimated US$18 trillion in wealth wiped out by the housing crisis, an improved market could ease the squeeze on family budgets and encourage new buyers.
Halting the property slump also is crucial to beefing up public-sector income, because land sales account for nearly 80 per cent of local revenue under the government fund budget, the second-largest of China’s four fiscal books.
Mr Robin Xing, chief China economist at Morgan Stanley, said the stimulus measures Beijing has taken since a policy pivot in late September 2024 amount to an “initial step towards breaking the old mindset”, but do not appear to be sufficient. “Policymakers are probably taking a trial-and-error approach,” he said on March 12 at a media roundtable.
Local officials’ main concerns are not so much about things like price caps for the unsold properties they can buy, but more about how their future performance will be evaluated if returns on investment do not prove sufficient to cover the costs and interest payments.
“We remain cautious about how many unsold apartments local governments will buy this year,” Mr Xing told Bloomberg on March 12. “The central government needs to make clear that the programme is aimed at providing affordable housing as part of efforts to improve the social safety net”, to free local officials from accountability worries, he said.
The stakes are high, following a year when actual expenditure undershot the goal by nearly 2 trillion yuan. With export growth at risk of being throttled by tariffs, a similar miss in 2025 would imperil the growth target.
Whether enough money gets spent where it is needed most remains to be seen. Many economists still question China’s ability to live up to its spending goals, given its track record.
“If fiscal spending misses the budget target, it will be very difficult to achieve the 5 per cent growth target,” said Dr Le Xia, chief Asia economist at BBVA Hong Kong. “That could eventually force the government to add stimulus to ensure the growth goal be hit.” bloomberg
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