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China Expected to Expand Budget Deficit Amid Trade War Risks

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(Bloomberg) -- China’s policy makers are expected to increase the budget deficit in the coming year, as a slowing economy and the downdraft from the trade war with the U.S. raise the need for a more active fiscal policy.

Authorities will increase the budget deficit target to between 2.6 percent and 3 percent of economic output, up from 2.6 percent this year, according to 21 of 28 economists in a Bloomberg survey. The remainder forecast a deficit higher than 3 percent of gross domestic product.

China Is Hitting Reality Now on ‘Impossible’ Tax, Deficit Goals

The quota for off-budget government bonds -- used in particular to finance stimulus via infrastructure investment -- will be at least 1.35 trillion yuan ($194 billion) -- the same or higher than this year, the survey showed.

China’s economy slowed more than expected in the third quarter as a funding squeeze combined with the uncertainty brought about by the trade war with the U.S. While policy makers have taken a series of steps to shore up the expansion, from easier credit policy to multiple cuts to banks’ reserve requirement ratios, high debt levels make broad-based stimulus less likely.

"For the coming period, China has a very difficult act to balance between reining in domestic risks, for example in terms of excessive debt, and keeping growth on track in order to secure social and financial stability," said Bjorn Giesbergen, an economist at Rabobank.

The U.S. is set to increase the tariffs on $200 billion worth of imports from China to 25 percent in January, unless a breakthrough on trade relations between the two nations can be achieved before then.

Of the 28 economists surveyed, 19 estimated that the 25 percent tariffs would cut 2019 growth by between 0.2 percentage point and 1 percentage point, with six seeing a lower impact and 3 forecasting a shaving of more than 1 percentage point.

The median estimate for 2019 real economic growth in a separate Bloomberg survey is 6.2 percent.

The People’s Bank of China will refrain from aggressive stimulus measures such as cutting benchmark lending interest rates or loosening property purchase rules, the surveyed economists said. Any policy maneuver will be consistent with easing steps taken this year, such as cutting taxes and injecting cash via reserve-ratio cuts, they said.

China Says More Aid Coming as Downdraft From Trade War Rises

The tax reduction measures would most likely come via lower rates for value-added tax and corporate income tax, and the reductions could lift growth by 0.1 to 0.3 percentage point, according to the economists -- much less than the potential hit to growth from tariffs.

To contact Bloomberg News staff for this story: Yinan Zhao in Beijing at;Cynthia Li in Hong Kong at

To contact the editors responsible for this story: Jeffrey Black at, James Mayger

©2018 Bloomberg L.P.

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