Recently, the announcements from provincial and local governments across China have painted a starkly different economic picture compared to the optimistic projections put forth by senior officials in the Communist Party’s central leadership in Zhongnanhai.
The top echelons of the Communist Party claim that China’s actual economic growth rate will reach between 4.5% and 5.0% this year. This is a slight downgrade from the previously predicted growth rate of 5.0% for 2025 and the year before.
Meanwhile, local governments are anticipating a significant slowdown in economic growth in the coming 12 months, leading them to cut budgets accordingly. Their depiction of the economic situation is much more grim than what is being described by Beijing, even if not explicitly stated, it implies such a viewpoint.
Provincial governments have significantly lowered their expected fiscal revenue for this year, citing the ongoing chain reaction caused by the housing crisis in China and issuing warnings about debt pressures as a result.
According to analysis by Fitch Ratings, one of the world’s three major credit rating agencies based in New York, the budgeted fiscal revenue growth for major Chinese provinces this year is only 2.0% to 3.0%. Fitch noted that approximately 23 provinces, regions, and municipalities openly discussed the issue of fiscal revenue shortfall, emphasizing the need to prioritize debt repayment over investments to promote economic growth, especially in light of off-balance sheet debts that have been accumulating in recent years to avoid the official debt ceiling set by authorities in Beijing.
The narratives from these government bodies are in stark contrast to the relatively optimistic outlook presented by Beijing regarding China’s overall growth prospects. Similar contradictions existed last year as well, raising doubts about whether the economic growth data reported by Beijing and the Communist Party accurately reflected the reality of the situation. It is certain that by 2026, budget constraints at the provincial and local government levels in China will hamper their ability to meet the fiscal expansion plans laid out by authorities in Zhongnanhai.
Based on the intelligence and analysis from Fitch Ratings, most smaller-scale government bodies have even given up discussing any large-scale stimulus policies. They will strive to align with Beijing and solely focus on targeted policies emphasized by planners, covering areas such as technology, artificial intelligence (AI), and biomedicine. Even within these limited efforts, smaller government bodies will heavily rely on so-called special bonds, allowing them to borrow off-balance sheet funds with tacit approval from the Communist Party.
Clearly, the analyses and conclusions by Fitch Ratings are not isolated cases. Gavekal Dragonomics, an independent economic research firm based in Hong Kong, pointed out that fiscal revenue shortages will intensify the demand of provincial and local governments seeking direct support from Beijing, further exacerbating the existing trend of financing decisions shifting from local control to centralized control by Beijing.
Undoubtedly, by the end of this year or early 2027, Beijing will proudly proclaim that China’s economic growth has reached the targeted range of 4.5% to 5.0% set by central planners. This will repeat the pattern of previous years: China’s economic growth not only nearing the target but almost entirely achieving it.
Anyone with experience in economic forecasting would tell you that hitting the target or prediction closely matching the actual situation is already a huge success. However, complete accuracy in predictions raises suspicions about the version of reality being presented. Given the financial predicaments of various provincial, regional, and municipal budgets in China, the claims by authorities in Zhongnanhai that their economic policies are precise and effective should be viewed with caution.