China Fiscal Playbook Unveiled: In a high-stakes annual economic meeting this week, Chinese leaders confidentially agreed to maintain a budget deficit of 3% of gross domestic product (GDP) in 2024, according to three sources familiar with the matter. This conservative figure, slightly lower than this year’s revised 3.8%, suggests Beijing’s commitment to fiscal discipline.
However, a strategic twist emergesChina is keeping a trump card up its sleeve by allowing for off-budget sovereign debt, potentially totaling a substantial 1 trillion yuan ($140.16 billion).
Sources, speaking anonymously due to the sensitive nature of the discussions, revealed that special sovereign bonds might be issued as needed to cover additional expenditures. This financial maneuvering provides Beijing with the flexibility to deploy a stimulus if necessary to uphold stable economic growth.
Notably, China has employed this tactic before, issuing special treasury bonds in 2020 to fund COVID-related measures and in 2007 to capitalize its sovereign wealth fund. This time around, these off-budget bonds could play a crucial role in supporting specific projects or policy goals.
“The 2024 deficit ratio is set to be 3%, and the insufficient part can be supplemented by special sovereign debt,” one source disclosed.
While China’s State Council Information Office, the finance ministry, and the National Development and Reform Commission did not immediately respond to requests for comment, the proposed figures are typically not publicly disclosed until the annual parliament meeting in March.
Another pivotal aspect of China’s fiscal strategy lies in the bond quota granted to local governments, also situated outside the official budget. Sources hinted at a potential 4 trillion yuan quota in 2024, up from this year’s 3.8 trillion yuan.
The recently concluded Central Economic Work Conference, led by President Xi Jinping, set the tone for China’s economic trajectory in the coming year. State news agency Xinhua reported that leaders agreed to pursue a proactive fiscal policy for 2024, including new rounds of fiscal and tax reforms.
China aims to improve the structure of fiscal spending to support strategic initiatives, with the Politburo emphasizing a fiscal policy that is “flexible, moderate, precise, and effective.”
Historically, China has maintained a budget deficit at or below 3%, deviating only during pandemic-affected years. Analysts, closely monitoring China’s fiscal moves, anticipate the government to target a growth rate of around 5% in 2024, aligning with this year’s objective.
Investors, however, are keeping a watchful eye, especially after Moody’s issued a downgrade warning, citing concerns about bailing out debt-laden local governments and managing the property crisis. China’s economic advisers, proposing growth targets between 4.5% and 5.5% for 2024, with a preference for around 5%, reflect the delicate balance between supporting growth and managing risks.
As China navigates its fiscal landscape, the strategic play involves maintaining discipline while holding the ace of off-budget sovereign debta tool that could prove crucial in responding to economic uncertainties and fostering stable growth.
Our Reader’s Queries
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%.
Will Chinese economy recover in 2024?
According to Derek Scissors, a senior fellow at the American Enterprise Institute, the Chinese economy will face a different challenge in 2024. While GDP growth is expected to exceed 4.5%, the real challenge will be the inevitable decline that follows. This presents a unique challenge for the Chinese economy, as it will need to find ways to maintain its growth trajectory in the face of this downward trend.
What was China’s opening up policy in 1978?
In December 1978, Deng introduced the Open Door Policy, which allowed foreign businesses to establish themselves in China. This was a significant move as it marked the first time since the Kuomintang era that the country had opened its doors to foreign investment.
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.