According to Bloomberg's latest report on Tuesday (December 10th), Chinese economists have stated that China may raise its budget deficit to the highest level in 30 years after its top leaders issued their boldest stimulus signals in years.

At least seven Chinese securities firms predict that next year's fiscal deficit target may reach 4% of gross domestic product (GDP), the highest level since the major tax reform in 1994. The Chinese government has always maintained a budget deficit rate of 3% or below.

Bloomberg pointed out that a larger fiscal deficit means that the government will borrow more funds to fund increased public spending, which may help boost domestic demand as businesses and households reduce spending and investment.

There are other forms of public borrowing that are not included in the overall deficit figures, and these debts may still expand to support the economy. These include special bonds of local governments, which are the main source of funds for infrastructure projects, and special treasury bond for strategic projects and consumer goods and equipment trade in projects.

In addition, Chinese economists predict that the People's Bank of China will implement the largest interest rate cut since 2015 next year.

According to a research report released after the high-level leaders' meeting in China on Monday evening, six securities firms are expected to cut interest rates by 40-60 basis points next year, which echoes earlier predictions from several foreign banks.

(Screenshot source: Bloomberg)

The decision-making body of the CPC made a strong commitment to promote economic growth with a "more active" fiscal policy, which triggered this view. The Political Bureau of the CPC Central Committee also hinted that it will shift from a "prudent" monetary policy that has been maintained for about 14 years to a "moderately loose" monetary policy.

Economists from Yuekai Securities stated in a report on Tuesday that this meeting "fully reflects the determination of senior leaders to promote sustained economic improvement and boost market confidence.

In recent months, the Chinese economy has shown signs of recovery after officials launched extensive stimulus plans.

However, with the threat of a second trade war with the United States and continued weak domestic demand, China's long-term prospects remain uncertain.

According to official media reports, Chinese President Xi Jinping stated on Tuesday that China has full confidence in achieving this year's economic growth target, and added that the tariff war, trade war, and technology war go against the historical trend and economic laws, and there will be no winner.

(Screenshot source: Bloomberg)

Bloomberg economists Chang Shu, Eric Zhu, and David Qu pointed out in a report that from the signals sent by the Politburo meeting of the Communist Party of China Central Committee, it seems that China will launch the strongest wave of stimulus measures in years to stimulate the economy. The shift in monetary policy towards the stance taken during the global financial crisis and the commitment to be more proactive in fiscal policy all demonstrate China's firm commitment to boosting economic growth.

Chinese economists also predict that the People's Bank of China will significantly lower the reserve requirement ratio.

China Galaxy Securities predicts that the central bank will reduce reserve requirements by up to 250 basis points next year, more than double the 100 basis points so far this year.