China’s Local Governments Step Up Fiscal Spending to Boost Economy

2025-02-12 09:32:18

China’s local governments are stepping up fiscal spending in 2025, with a focus on improving livelihoods, expanding domestic demand, and nurturing new growth drivers. This comes as the central government has front-loaded new local government bond quotas, enabling proactive policies to produce effects early on. The move is part of a broader effort to boost economic growth and ensure the funding needs of major projects in key areas.

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Front-Loading of Local Government Bonds

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Several Chinese provincial governments have disclosed the amount of front-loaded local government debt quotas for 2025. Guangdong Province, for example, has been front-loaded with 321.3 billion yuan ($43.97 billion) of new local government debt quota, including 17.8 billion yuan of general debt and 303.5 billion yuan of special local government bonds. This is approximately 60 percent of the province’s incremental bond issuance in 2024.

Jiangsu Province has also announced that the amount of front-loaded new government debt quota for 2025 stands at 154 billion yuan. In total, the combined amount of new local government debt quota front-loaded in 2025 is estimated to reach 2.8 trillion yuan.

This sizable increase in front-loaded new local government bonds is an earnest implementation of the annual Central Economic Work Conference held in December 2024, which pointed out that the country should adopt a more proactive fiscal policy while urging efforts to vigorously boost consumption.

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Fiscal Spending Priorities

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The increased fiscal spending will be used for a variety of purposes, including improving livelihoods, spurring domestic demand, and boosting tech innovation. For instance, Sichuan Province plans to allocate 136.25 billion yuan to social security in 2025, accounting for 36.7 percent of the province’s general public budget expenditure. Additionally, 37.16 billion yuan will be used for education, accounting for 10 percent of its general public budget expenditure.

Some provinces will also use fiscal spending to boost tech innovation and accelerate the building of a modern industrial system. Hunan Province, for example, will support the high-quality development of key industrial chains in the manufacturing sector and actively nurture and expand emerging and future industries.

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Debt Risk Management

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Despite the increase in fiscal spending, local governments are also focusing on managing debt risks. In 2024, China raised the local debt limit by 6 trillion yuan, with 2 trillion yuan used to swap local implicit debt, effectively alleviating local debt pressure and optimizing the debt structure.

In 2025, local governments will continue to implement full - debt management, reduce the number of financing platforms, and curb the addition of new implicit debt. Some provinces have explicitly stated that they will prevent the platformization of state - owned enterprises and institutions and prohibit the issuance of government financing tasks to state - owned enterprises.

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Economic Outlook

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The proactive fiscal policy is expected to have a positive impact on China’s economic growth. The IMF recently upgraded China’s economic growth forecast for 2025 to 4.6 percent, up 0.1 percentage point from October's projection.

China’s consumer price index rose faster in January, driven by surging demand for travel, dining, and shopping during the Spring Festival holidays. This highlights the vitality and resilience of the economy and indicates that China’s economic expectations this year will outperform those of last year.

fiscal policy

local government bond

Debt

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China’s Local Governments Step Up Fiscal Spending to Boost Economy