Due to weak fiscal revenue and front-loaded spending efforts, China's fiscal deficit surged to 45% in H1 2025. Experts interviewed noted that although the Chinese authorities have ramped up spending, they have still left room to avoid indiscriminate, large-scale stimulus measures often referred to as "flood-like irrigation". SMU Assocaite Professor of Finance Fu Fangjian pointed out that the widening increase in China's deficit was not surprising. Assoc Prof Fu said that this was due to the external influence of the US tariff war, and the Chinese government increased spending to accelerate the "internal circulation". However, Assoc Prof Fu believes that insufficient domestic demand has been the fundamental problem of China's economy in recent years. Accelerating the domestic circulation is not entirely to respond to the tariff war but also has a clear domestic policy orientation.
