- China’s January–April budget deficit ballooned to a record 2.65 trillion yuan ($367 billion), marking a 50% increase year-on-year.
- Massive fiscal spending aimed to offset the impact of soaring US tariffs and economic headwinds.
- Government outlays on debt interest, infrastructure, and social programs surged, even as revenue growth slowed.
Alarming Fiscal Shortfall Raises Economic Red Flags
China has reported an alarming budget deficit for the first four months of 2025, reflecting the government’s aggressive spending to counter external economic shocks. The deficit hit a record 2.65 trillion yuan ($367 billion), the highest ever recorded for the period, according to Bloomberg calculations based on official Finance Ministry data.
This represents more than a 50% increase compared to the same period last year, highlighting the scale of fiscal intervention as Beijing ramps up its support to shield the economy from mounting pressures—including a heated trade war with the United States.
Alarming Rise in Spending Fuels Budget Strain
The driving force behind this alarming fiscal shortfall was an aggressive uptick in government spending. Total expenditure between January and April surged by 7.2% year-on-year, reaching 11.97 trillion yuan. This figure combines everyday public spending under the general budget and capital-heavy investment spending from the government fund budget.
Interest payments on government debt rose the fastest, increasing 11% compared to the previous year. Significant increases were also seen in social security, employment support, and education—critical sectors that offer relief to citizens most affected by economic uncertainty.
This spending blitz came as China faced intensified tariffs from the United States. In April, US tariffs on most Chinese goods reached a staggering 145% before a temporary truce was agreed upon earlier this month. The budget response was immediate and robust, signaling Beijing’s commitment to mitigating the effects of global trade tensions.
Infrastructure Boom Adds to Alarming Fiscal Burden
A large part of the alarming rise in the budget deficit can be traced to a surge in infrastructure and investment-driven spending. Central government fund budget expenditures jumped 75% from a year earlier, while local government spending in the same category climbed 16.6%.
These figures suggest a strategic pivot toward infrastructure and public works projects as a way to stimulate domestic demand, absorb labor, and offset the drag from weak export performance. However, the scale of this stimulus raises sustainability concerns, particularly given the already high levels of local government debt.
While these projects may yield long-term economic benefits, the immediate fiscal impact has been severe, putting pressure on government coffers and raising questions about the ability to maintain such aggressive spending in the second half of the year.
Revenue Growth Trails Behind Alarming Spending Levels
Despite some signs of stabilization, revenue growth remains tepid and is failing to keep pace with the alarming expenditure levels. Total government income from the general and fund budgets reached 9.32 trillion yuan in the January-April period, a decline of 1.3% year-on-year.
April brought modest relief with tax revenue rising 1.9%—a rebound from the 2.2% drop in March. Analysts at Goldman Sachs attribute this slight improvement to stronger collections in individual income taxes, reflecting marginal improvements in employment and wages. Still, these gains are nowhere near sufficient to offset the steep rise in expenditures.
The mismatch between spending and income points to a growing structural imbalance in China’s public finances. While the current stimulus is seen as necessary to stabilize short-term growth, prolonged fiscal deficits of this scale could constrain future policy flexibility.
Truce May Cool Alarming Deficit Growth Ahead
There is a silver lining: the recent agreement between China and the US to de-escalate trade tensions could reduce the need for further stimulus in the near term. With tariffs now temporarily lowered, economic pressure may ease slightly, giving Beijing room to rein in spending.
However, experts caution that the global economic outlook remains volatile, and any backsliding in trade talks could force China to reintroduce aggressive fiscal measures. For now, policymakers are likely to monitor the impact of recent spending before deciding on additional interventions.
China’s record-breaking deficit serves as a stark reminder of the challenges it faces as it seeks to maintain economic stability amid global uncertainties. While bold government action has provided short-term relief, the alarming scale of the deficit raises critical questions about long-term fiscal health.
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