Proactive Fiscal Policy and Future Reforms
The annual Central Economic Work Conference, held on Monday and Tuesday behind closed doors, served as a platform for President Xi Jinping and other top officials to chart the course for China’s second-largest economy in the coming year. According to a readout from state news agency Xinhua, the leaders agreed to adopt a proactive fiscal policy in 2024. China is also planning a new round of fiscal and tax reforms, with a focus on improving the structure of fiscal spending to support strategic tasks, as reported by state media without providing further details. The Politburo, a top decision-making body of the ruling Communist Party, has previously stated that fiscal policy would be “flexible, moderate, precise, and effective.”
Targets and Economic Outlook
Reuters has learned from government advisers that economic growth targets for 2024 are expected to range from 4.5% to 5.5%, with a majority leaning towards a target of around 5%, similar to this year. All three sources indicated that China is likely to aim for approximately 5% growth in 2024. Investors have been closely monitoring China’s fiscal position, especially after ratings agency Moody’s issued a downgrade warning last week. The warning cited concerns over the costs associated with bailing out debt-laden local governments and state-owned companies, as well as managing the property crisis. IMF data revealed that local government debt reached 92 trillion yuan, equivalent to 76% of China’s economic output in 2022, up from 62.2% in 2019.
Analysts expect China to maintain flexibility with its budget deficit in 2024, as a precautionary measure in case of underperformance in the economy. In October, China announced plans to issue 1 trillion yuan in sovereign bonds by the end of this year to enhance flood-prevention infrastructure. These bonds were included in the budget, increasing the 2023 deficit target to 3.8% of GDP from the original 3%. While economic growth is projected to reach around 5% this year, analysts believe that achieving a similar level in 2024 may require stronger fiscal support due to the impacts of the COVID-19 pandemic in 2022.