China’s Finance Ministry has agreed to widen its deficit target for next year to 2.8%, up from 2.6% the previous year, to accommodate a more pro-active fiscal policy and tax cuts amid efforts to soften the economic slowdown.
Two sources told Bloomberg that the new target was confirmed during December’s annual work conference, although the final figure could be changed between now and its public release at the National People’s Congress in March.
According to Bloomberg, 2.8% is smaller than what many economists had expected. Faced by an intensifying slowdown, Beijing has promised more easing measures in the next year, making a larger gap between spending and tax revenue inevitable.
“We expect most of the extra fiscal stimulus will be reflected in reductions in personal income and corporate taxes,” wrote David Qu and Chang Shu of Bloomberg Economics. “A 2.8% deficit target would be a calibrated policy response aimed at combating continued weakness in domestic demand, flagging external demand and uncertainties associated with a trade war with the US.”