USD, USD/CNY flows: China Only Modest Fiscal Stimulus

This will likely be followed by an additional Yuan2.0trn in March 2026, which would be a similar size to the 2025 fiscal stimulus.  This is modest rather than aggressive and China is not going to boost global growth in 2026. Further fiscal stimulus will be required for 2026, otherwise trend growth will be around 4.0%. We see infrastructure investment remaining the key element of extra fiscal stimulus and the usual main fiscal stimulus announcement at the March 2026 NPC meeting. Even so, there remains a concern in policy circles that the government deficit and debt trajectory mean only moderate fiscal space, with the authorities’ action suggesting that they believe the IMF estimate for the surging general government debt trajectory.  One of the key problems is that tax/GDP remains low compared to other middle-income countries and the authorities are reluctant to fix this structural problem.  IMF estimates China tax revenue at 25.1% compared to G20 EM and DM average of 25.9% and 35.7% respectively.  

USD/CNY is also in focus, with speculation that China could allow a move through 7.00.  However, this could hurt competitiveness and China authorities will likely restrain any move in the near-term.