China Fiscal Strategy Unveiled: In a strategic move during the annual Central Economic Work Conference, Chinese leaders have agreed to run a budget deficit of 3% of gross domestic product (GDP) in 2024, signaling a commitment to fiscal discipline. However, sources reveal that additional fiscal support may come in the form of off-budget sovereign debt, offering flexibility in stimulating economic growth.
While the 3% deficit is lower than this year’s revised target of 3.8%, suggesting a measured approach, the option to issue off-budget sovereign debt, including special sovereign bonds, provides Beijing with the means to step up stimulus if needed. Insiders suggest that these special bonds could amount to 1 trillion yuan ($140.16 billion), showcasing China’s willingness to adapt its fiscal strategy.
China has a history of issuing special treasury bonds for specific purposes. Notably, in 2020, 1 trillion yuan in such debt was deployed for COVID-related measures. The idea of special bonds, not included in annual budget plans, is viewed by China as an extraordinary measure to raise funds for specific projects or policy goals during times of need.
Also Read: China Economic Future: Behind Closed Doors for 2024 Stimulus Plans
“The 2024 deficit ratio is set to be 3%, and the insufficient part can be supplemented by special sovereign debt,” shared one source familiar with the discussions. In addition to the off-budget sovereign debt, another crucial element of China’s fiscal stance involves the bond quota allocated to local governments. It’s anticipated that local governments could be allowed to issue close to 4 trillion yuan in 2024, a slight increase from this year’s 3.8 trillion yuan.
The annual closed-door Central Economic Work Conference laid the foundation for a proactive fiscal policy in 2024, as indicated by a readout of the meeting by state news agency Xinhua. The leaders also discussed plans for a new round of fiscal and tax reforms, aiming to improve the structure of fiscal spending to support strategic tasks.
China’s decision to keep its budget deficit ratio at or below 3%, with the option for additional off-budget sovereign debt, highlights its cautious approach amid economic challenges. Analysts anticipate a growth target of around 5% for 2024, aligning with this year’s objectives. As China navigates the complex economic landscape, its fiscal strategy underscores a balance between stability and flexibility, providing a nuanced approach to future uncertainties.
Our Reader’s Queries
What was China’s fiscal policy in 2008?
In response to the global financial crisis, China introduced a stimulus package worth four-trillion-yuan (equivalent to 590 billion U.S. dollars) in late 2008. The country also changed its fiscal policy from “prudent” to “proactive” and loosened its monetary policy from “tight” to “moderately loose.” These measures were taken to counter the impact of the crisis.
What’s in store for China’s GDP and fiscal policy in 2023?
After analyzing the Q3 data, we have revised our GDP forecast for 2023 from 4.8% to 5.2%. This is slightly higher than the BBG consensus of 5.1% and slightly lower than the IMF’s forecast of 5.4%. We have maintained our 2024 forecast at 4.4%. To support growth recovery, both monetary and fiscal policies will continue to ease.
Does China have a fiscal policy?
In a bid to revive its sluggish economy, China has pledged to bolster its fiscal policy in 2024. This decision was made after a meeting of high-ranking Communist party officials and comes on the heels of Moody’s recent downgrade of China’s credit rating from stable to negative. The move is aimed at providing a much-needed boost to the country’s economic growth and stability.
What is the China stimulus package for 2023?
China recently announced its plan to release 1 trillion yuan ($139 billion) in sovereign bonds by year-end. This move will increase the 2023 budget deficit target to 3.8% of gross domestic product (GDP), up from the initial 3%.