China's Fiscal Strategy Amid U.S. Tariffs

China's fiscal revenue decline has slowed, showing resilience despite U.S. tariffs. The first quarter saw a decrease in tax revenue but an increase in non-tax revenue, with fiscal expenditure also rising. China's economic recovery faces challenges including sovereign rating concerns and deflationary pressures, requiring proactive policy measures.

China's fiscal revenue show signs of improvement amidst challenging external conditions including U.S. tariffs, according to recent data. In the January-March period, China's fiscal revenue was recorded at 6.0 trillion yuan ($821.54 billion), marking a 1.1% year-on-year decrease, which is an improvement over the 1.6% decline reported for the first two months of 2025.

The country's tax revenue faced a 3.5% fall, but there was a notable 8.8% rise in non-tax revenue, accompanied by a 4.2% increase in fiscal expenditure. The nation has set its highest budget deficit target at approximately 4% of GDP for the current year to support its growth target of around 5%, but experts caution achieving this could be tough due to ongoing U.S. tariffs.

Fitch recently downgraded China's sovereign credit rating, citing escalating government debt and risks to public finances, presenting a tough scenario for policymakers. While China's bank lending and export numbers have improved, deflationary pressures persist, showcasing the struggles of China's economy to rebound fully from the COVID-19 pandemic, marked by sluggish domestic demand and deflation concerns.

(With inputs from agencies.)