China's general public budget revenue is expected to grow at around 2 percent year-on-year in 2025, which analysts said is a prudent goal in the face of both domestic challenges and external uncertainties, after local governments recently unveiled their financial plans.

General public budget revenue is the sum of tax revenue and non-tax revenue.

Despite facing a tight fiscal balancing act, China will resort to a more proactive fiscal policy this year, including raising the fiscal deficit-to-GDP ratio and issuing more government bonds, to steer the economy toward a sustainable, high-quality growth trajectory, they said.

While the Xinjiang Uygur autonomous region and the Xizang autonomous region stand out with expected year-on-year general public budget revenue growth of about 10 percent, the remaining 29 provincial-level regions on the mainland have set more conservative targets, with growth rates largely concentrated between the 2 percent to 3 percent range.

Guangdong province, the nation's top general public budget revenue generator in 2024, and Shandong province, ranking fifth, both project 3 percent growth in their general public budget revenues. Meanwhile, Jiangsu province, Zhejiang province and Shanghai — ranking second, third and fourth, respectively — have set even more conservative targets of 2 percent.

An analysis of budget plans reveals that China's 31 provincial regions on the mainland have set an average growth target of 2.8 percent for general public budget revenue in 2025, marking a decline of 1.6 percentage points compared to last year's target average, said Luo Zhiheng, chief economist at Yuekai Securities.

Over the past decade, China's national fiscal revenue growth targets have consistently been slightly lower than those set by local governments, with the difference typically within 1 percentage point, Luo said.

This trend is very likely to continue in 2025, as the central government might aim for a modest general public budget revenue growth target of around 2 percent, Luo added.

China's fiscal revenue expectations for 2025 are closely tied to the broader economic outlook, as local governments have already set a weighted average GDP growth target of about 5.3 percent for this year.

The widespread caution in fiscal revenue expectations among localities reflects the complex economic landscape they are navigating, marked by challenges that are weighing on overall revenue generation, said Yang Zhiyong, president of the Chinese Academy of Fiscal Sciences.

Tepid consumer demand and price pressures have directly impacted tax collection, therefore affecting the taxpaying capacity of businesses and directly dragging down the pace of fiscal revenue growth, Yang said.

The dampened demand in the real estate market, coupled with uncertainties clouding the country's exports due to Washington's trade barriers, have collectively diminished the fiscal revenue-generating capacity of local governments, Yang added.

As China's local governments set modest growth targets in general public budget revenues and await the finalization of their 2025 debt issuance quotas after the upcoming National People's Congress session in March, budget expenditure growth rates disclosed by local authorities are generally low, with some provinces even reporting declines in spending growth.

"The initial local fiscal spending budgets were based on only a portion of the debt quotas provided up front by the Ministry of Finance," Luo said.

However, as the fiscal deficit-to-GDP ratio is expected to be widened and local government special-purpose bond ceilings raised in March, local governments will have more fiscal firepower to boost consumption, scale up investment and anchor market expectations, Luo added.

KPMG China said in late December that the country's fiscal deficit-to-GDP ratio is poised to hit a record high of 4 percent for this year.

Meanwhile, the new quota for local government special bonds in 2025, according to Wen Bin, chief economist at China Minsheng Bank, is expected to reach 4.5 trillion yuan ($618.57 billion).

A large number of major infrastructure projects and key initiatives are set to commence construction this year, leading to continued high demand for new funding. Moreover, local governments are facing the pressing task of replacing existing hidden debt, recouping idle landholdings and acquiring existing commercial housing for public rental housing purposes, Wen said.

Policymakers aim to create a virtuous cycle where enhanced spending efficiency and effectiveness lead to stronger economic growth, which in turn generates greater tax and revenue collection capacity for the government, Wen added.