Finance & Economics

China to Realize Proactive Fiscal Policy to Boost Economy

The Chinese authorities have promised to take measures to strengthen fiscal policy next year to maintain the economic system of this country, the situation within which tends to become synonymous with weakness, but has not yet reached a catastrophic level and there are chances to remedy the situation.

China to Realize Proactive Fiscal Policy to Boost Economy

Beijing’s statement of intent on stimulating economic development was released on Friday, December 8, after a meeting of top officials of the Communist Party of China. The media also drew attention to the fact that plans to strengthen fiscal policy became known a few days after Moody’s downgraded the outlook on the country’s credit rating from stable to negative. This agency explained its decision by the fact that China is currently experiencing a structural and steady decline in medium-term economic growth. In this context, Moody’s experts also drew attention to significant problems in the local real estate sector, which have a global impact within the country, going beyond the situation in one industry.

Officials at a meeting on Friday promised to take additional measures to boost domestic demand. They also announced their intentions to make decisions aimed at stabilizing the situation in foreign trade and sphere of investment. Friday’s meeting was attended by the head of the People’s Republic of China Xi Jinping and 24 members of the Politburo.

It is worth noting that Beijing, as part of the planned stimulation of economic growth, adheres to those guidelines that have been identified by independent experts as the most appropriate. For example, this week Frederic Neumann, Chief Economist for Asia at HSBC, spoke about the importance of domestic demand. The expert said that Beijing should focus on this factor as the main driving force behind the recovery of economic growth. Frederic Neumann also noted the lack of signs of the Chinese authorities’ readiness for such tactics, but Friday’s statement signals the opposite. Zhiwei Zhang, president and chief economist at Pinpoint Asset Management, also spoke about the importance of focusing on domestic demand. This expert justified his recommendation with the so-called cooling of the economies of the USA and Europe, due to which there is no basis for the formation of a sustainable export cycle.

In a statement on Friday, Chinese officials noted the need to pursue a proactive fiscal policy and a prudent monetary policy. It is separately noted that an active fiscal policy should be moderately strengthened with an increase in quality and efficiency.

Monetary policy most often involves decisions that are made by the central bank to influence the cost of borrowing and to control inflation. Fiscal policy is related to the use of taxation and government spending to impact the economic system.

Officials also stated the importance of preventing risks in the most significant areas of the economy and countering the emergence of a systemic threat.

The Chinese Politburo holds meetings once a month to discuss the political program of the functioning of the state and make decisions on the most sensitive issues for the country. The annual Central Economic Work Conference will also be held this month. As a rule, this event is a kind of source of formation of the concept of economic policy for the coming year.

Friday’s meeting took place at a time of serious challenges faced by Beijing. In this case, it means the worsening problems in the space of the world’s second-largest economy. The downturn in the real estate market has become something like a widespread trend with signs of a systemic phenomenon. Against the backdrop of the crisis in this area, local governments with a debt burden are seeing increased pressure on them. In China, some of the largest developers have already defaulted.

Moody’s predicts that economic growth in the specified country will slow to 4% next year. The agency also believes that this indicator will remain in 2025. In the period from 2026 to 2030, Moody’s experts predict China’s economic growth at 3.8%. In this case, one of the factors of influence is weak demographics.

China expects economic growth in 2023 to be about 5%. BlackRock data shows that before the coronavirus pandemic, this figure in the mentioned country increased by an average of 7.7% annually.

Serhii Mikhailov

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Serhii’s track record of study and work spans six years at the Faculty of Philology and eight years in the media, during which he has developed a deep understanding of various aspects of the industry and honed his writing skills; his areas of expertise include fintech, payments, cryptocurrency, and financial services, and he is constantly keeping a close eye on the latest developments and innovations in these fields, as he believes that they will have a significant impact on the future direction of the economy as a whole.