Beijing to Maintain Financial Expansion to Stimulate Economic Recovery

The Chinese Ministry of Finance has announced that Beijing will maintain financial expansion this year to stimulate economic recovery, bolstering market expectations that public spending will be the government’s main tool to enhance growth.

In a press conference on Thursday, Chinese Deputy Finance Minister Wang Donggui stated that the government “will work on increasing the intensity of financial amendments on the overall economy, and implement proactive financial policies to enhance the positive direction of the economic recovery.”

The Chinese economy remained in a fluctuating and stumbling recovery phase after COVID-19, with continuing contraction pressures, a severe recession in the real estate sector, and geopolitical challenges that kept calls for further political support alive.

An official survey this week indicated that the economy is still performing weakly at the beginning of 2024 and requires further political support, as manufacturing activity contracted again last month due to ongoing weak demand.

Wang said that the authorities will maintain the necessary intensity in financial spending this year, and will retain a certain amount of transfer payments to local governments. He added that fiscal policy will focus on expanding domestic demand, and the government will use financial subsidies, loan interest support, and tax incentives to support technological innovation and advanced manufacturing.

Wang stated that China’s financial revenue increased by 6.4 percent in 2023, showing a significant rise compared to an increase of 0.6 percent in 2022 that was impacted by the coronavirus. Meanwhile, financial expenditure grew by 5.4 percent in 2023, slowing down from a 6.1 percent increase in 2022. Additionally, he mentioned that revenues are expected to increase even more this year.

Financial revenues decreased by 8.4% in December compared to a 4.3% increase in November, according to calculations based on official data by Reuters. Financial expenditure also increased by 8.3% in December, compared to an 8.6% increase in November.

In the face of sluggish growth, the government relies on well-utilized rules of the game, which involve using government debt to finance infrastructure projects to help boost the economy. This is because consumers are concerned about spending and companies lack confidence in expanding.

However, in an attempt to assert more control over how money is invested, the government issued instructions to heavily indebted local governments to delay or halt some state-funded infrastructure projects.

“Reuters reported last month that Chinese leaders agreed, in a major economic meeting at the end of last year, to manage a budget deficit of 3 percent of gross domestic product in 2024, while other financial support would be covered through off-budget debt. The government is scheduled to release its annual budget plans during the annual parliamentary meeting in March.”

In the press conference, Xian Zhong, the Head of the Treasury Department at the Ministry of Finance, stated that China issued preliminary allocations worth 2.62 trillion yuan in 2024 for special bonds for local governments to finance major investment projects.

In October, the Chinese parliament approved the issuance of sovereign bonds worth trillions of yuan and allowed local governments to pre-load a portion of the bond shares for the year 2024.

Data from the Ministry of Finance last Tuesday showed that local governments issued net special bonds worth 3.96 trillion yuan in 2023, exceeding the annual quota of 3.8 trillion yuan.

On the other hand, the unexpected announcement of the Chinese Central Bank last week was to decrease the bank reserve requirements. Analysts say that the Central Bank has limited room to ease monetary policy due to concerns that it may weaken the yuan and bank profits.(AFP)