context: The draft Government Work Report was presented by Premier Li Qiang 李强 on 5 March 2025. It prioritises expanding domestic demand, and addressing weak demand and external uncertainties. Consumption and investment are emphasised as primary drivers of growth.
Highlights in the 2025 Government Work Report include a significant shift in fiscal policy, with the deficit expanding by C¥1.6 tn, raising the deficit ratio to 4 percent, explains Zhang Jun 张军 Fudan University School of Economics dean, marking the most aggressive fiscal expansion in years. Key allocations include
- C¥1.3 tn in ultra-long-term special bonds, up C¥300 bn in 2024
- C¥500 bn in special bonds for state-owned commercial banks
- C¥4.4 tn in local government special bonds, up 500 bn in 2024
This signals a clear commitment to increasing government spending with transparency on funding sources and allocation, says Zhang.
While investment remains crucial, the government now also emphasises 'investment efficiency' and avoiding wasteful projects. Overinvestment in the past has strained fiscal resources without generating sufficient returns. The current approach ensures that funds are directed towards projects that yield tangible economic benefits.
The 2025 inflation target has been lowered from 3–2 percent, aligning with Zhang’s previous recommendations. Given persistent deflationary pressure—CPI growth in 2024 was just 0.2 percent—this adjustment is more realistic, he says. Moderate inflation would improve market expectations, boost demand and create monetary policy flexibility.
The government aims to direct more resources toward social welfare, including pension increases, improved healthcare funding and expanded housing support for migrant workers. Zhang supports this shift, emphasising that investing in people can help bridge the urban-rural divide and improve long-term economic stability.
Zhang suggests that policies should have built-in expiration dates to prevent outdated regulations from hindering new initiatives. A lack of policy clarity has led to hesitation in sectors like real estate, where local governments have struggled to adjust housing restrictions.
Rather than fixating on specific cities or industries, Zhang argues that a supportive environment for entrepreneurship is key. Innovation emerges from competition, and policymakers should focus on maintaining a dynamic and flexible market ecosystem.
Despite ongoing US–PRC tensions, Zhang believes the PRC has developed resilience to external pressures. The focus should be on strengthening domestic economic fundamentals rather than reacting to US policy shifts.