China Will Increase Government Spending to Bolster Economy

10 Jan 2024

China will expand government spending in 2024 through a combination of policy tools, Lan Foan, the country’s newly appointed finance minister, said as Beijing steps up efforts to stimulate domestic demand and shore up the economy.

The government will strengthen the overall coordination of fiscal resources, utilizing a combination of special bonds, national bonds, and other policy tools such as tax incentives and fiscal subsidies to moderately expand the scale of fiscal spending, Lan said in an interview published Thursday by official newspaper People’s Daily.

In 2024, the government will maintain a proactive fiscal policy with an appropriate level of fiscal spending increase to send positive signals, said Lan. In addition to a “certain level” of fiscal deficit, authorities will continue to set an “appropriate” quota for special purpose bonds — a key source of infrastructure investment for local governments — while keeping the overall government leverage ratio stable, said the minister.

“We will make sure the overall size of fiscal spending increases to play a better role stimulating domestic demand,” said Lan, a public finance specialist who became the finance minister in October.

Lan’s remark followed pledges by China’s top leadership’s pledges at a key policy meeting in December to spur domestic demand and strengthen macro policies with greater emphasis on economic growth.

The meeting, chaired by President Xi Jinping, sent signals that policymakers “decided to give more weight to development” as they “seem to be growing impatient with the sluggish growth,” economists at Macquarie Group Ltd. wrote in a note after the meeting.

The pro-growth policy calls come as policymakers struggle to lift China’s economy out of pandemic-induced doldrums while dealing with problems such as massive local government debts and a prolonged property market slump.

Economists expected more expansionary fiscal policy to be carried out in 2024, although to a more limited extent. UBS analysts led by Wang Tao, the bank’s chief China economist, predicted that the country will set a headline fiscal deficit-to-GDP ratio of 3.5% to 3.8% in 2024 — higher than the initial projection of 3% for 2023, which was later raised to 3.8% — and allocate a larger SPB quota.

Lan in the interview said, “the deficit ratio is an important indicator of macroeconomic policy” and the government has set the ratio at a reasonable range in recent years, while leaving room to address potential risks and challenges.

The central government will continue transferring funds to local authorities to help them meet basic spending needs, with poorer areas receiving preference, he added.

The special purpose bond is an important fiscal tool to support local authorities and expand investment, Lan said. Some economists expected this year’s special bond quota to be unchanged from last year at around 3.8 trillion yuan ($487 billion).