Investing.com-- China's top leaders have agreed to increase the country's budget deficit to 4% of gross domestic product (GDP) in 2025, marking the highest level on record, Reuters reported on Tuesday citing unnamed sources.

The decision, made during December's Politburo meeting and the Central Economic Work Conference (CEWC), aligns with plans for a more proactive fiscal policy to support economic growth, the report stated.

The new deficit target represents a significant rise from the previously projected 3% of GDP for 2024. The additional spending, equivalent to approximately 1.3 trillion yuan ($179.4 billion), will be funded partly through the issuance of off-budget special bonds, according to the report. Official announcements on these targets are expected during the annual parliamentary session in March.

After the news, Chinese stocks pared some losses. The Shanghai Composite index was slightly lower after falling nearly 0.7% earlier in the day. The Shanghai Shenzhen CSI 300 index climbed 0.8%, while Hong Kong’s Hang Seng index reversed earlier losses to gain 0.1%.

China is also maintaining an economic growth target of around 5% for 2024, consistent with this year’s goal, despite ongoing economic challenges such as the property market crisis, high local government debt, and weak consumer demand, the Reuters report said.

The CEWC summary emphasized the necessity of steady economic growth, alongside fiscal and monetary measures aimed at stabilizing the economy, a state media summary of the closed-door CEWC showed.

Reuters report stated that the central bank plans to adopt an "appropriately loose" monetary stance, potentially signaling more rate cuts and liquidity injections.

Additionally, China's economy faces looming external risks, including potential U.S. tariffs exceeding 60% on Chinese goods, should President-elect Donald Trump implement his campaign pledges. Analysts warn such measures could shrink profits for exporters, exacerbate overcapacity, and weigh on economic growth.

For now, Beijing appears prepared to rely on fiscal stimulus while exploring other tools, including exchange rate adjustments, to counter external pressures, the report added.