Commentary: Where the Money Needs to Go to Spur on China’s Growth

If China is to offer a massive fiscal stimulus package, this is what it should look like

China has announced a range of monetary stimulus measures in September to boost the economy. Now, market expectations are building around the possibility of a massive fiscal stimulus package, with some speculating it could exceed 10 trillion yuan ($1.4 trillion).

However, we think it may be more reasonable to expect a more modest package of 1.5 to 2 trillion yuan in the near term, while another 2 to 3 trillion yuan of fiscal expansion on top of what we have already assumed in our earlier baseline forecast could be expected in 2025.

In late August, we projected an additional 1 to 1.2 trillion fiscal expansion in the second half of 2024, which would bring this year’s fiscal expansion to about 0.3-0.4% of GDP. For 2025, we have assumed a fiscal expansion of about 1% of GDP in the baseline, which includes 1.5 trillion yuan in special treasuries and about 4 trillion yuan in special local government bonds, in addition to a modestly higher budget deficit of 3% to 3.5% of GDP.

We think a stimulus for 2024 could be announced immediately after the October holiday or around the third quarter data release on Oct. 18, while measures for 2025 could be decided around the time of the Central Economic Work Conference in December.