Daily Management Review

China Plans To Issue Special Debt And Sustain A 3% GDP Budget Deficit In 2024


China Plans To Issue Special Debt And Sustain A 3% GDP Budget Deficit In 2024
Chinese leaders decided to run a 3% GDP budget deficit in 2024 at their annual meeting on the economy. A Reuters report that cited unidentified sources claimed that additional fiscal support could be provided by off-budget debt.
With the ability to issue off-budget sovereign debt, Beijing has the flexibility to increase stimulus to maintain stable economic growth even though the deficit figure is less than this year's revised 3.8% target, indicating Beijing wants to maintain fiscal discipline and is not planning a big fiscal bazooka for next year.
Special sovereign bonds might be issued to cover further costs as needed, according to two of the sources who spoke with Reuters. One of them estimated their potential value to be $140.16 billion, or one trillion yuan.
China has already issued special treasury bonds. It auctioned 1 trillion yuan worth of such debt in 2020 to raise money for Covid-related initiatives. It capitalised its sovereign wealth fund by issuing 1.55 trillion yuan in 2007. It recapitalized state banks in 1998 with the issuance of 270 billion yuan.
China views special bonds as an extraordinary tool to raise funds for particular projects or policy objectives in times of necessity, hence it does not include them in its regular budget planning.
"The 2024 deficit ratio is set to be 3% and the insufficient part can be supplemented by special sovereign debt," one of the sources said.
There were no comments in the report from China's State Council Information Office, which responds to media inquiries on behalf of the government, the finance ministry, and the main state planner, the National Development and Reform Commission.
Typically, the formal goals are not made public until March, when China holds its annual parliament meeting.
The bond quota that local governments are permitted to issue, which is likewise outside the government's budget, is another important component of China's overall fiscal policy. Compared to this year's 3.8 trillion yuan, one of the sources estimated that it would reach around 4 trillion yuan in 2024.
There was no figure provided by the other sources.
Monday and Tuesday were spent behind closed doors at the annual Central Economic Work Conference, where President Xi Jinping and other senior officials set the direction for the second-largest economy in the world for the upcoming year.
According to a Xinhua state news agency transcript of the meeting, the leaders decided on a proactive fiscal policy until 2024.
Without providing specifics, official media reported that China is planning a new round of tax and fiscal reforms and that the administration is trying to enhance the structure of fiscal spending to support strategic missions.
The ruling Communist Party's Politburo, a high-ranking decision-making body, declared last week that budgetary policy will be "flexible, moderate, precise, and effective."
Historically, China has kept its budget deficit ratio at or around 3%; the pandemic-affected years 2020 and 2021, as well as this year, are the only recent deviations, as the government increased measures to support a faltering economic recovery.
According to Reuters, advisors to China's government have suggested that economic growth targets for 2024 be set between 4.5% and 5.5%, with most suggesting a target of about 5%, the same as this year.
Following the annual meeting, three sources who spoke with Reuters agreed that China was probably going to aim for growth of about 5% in 2024.
Following last week's downgrade warning by ratings agency Moody's due to costs associated with controlling China's property crisis and rescuing indebted local governments and state companies, investors are paying closer attention to the country's budgetary situation.
According to figures from the International Monetary Fund, local government debt increased from 62.2% in 2019 to 92 trillion yuan, or 76% of China's economic output, in 2022.
Analysts predict that, should the economy underperform, China will maintain some leeway in its budget deficit for the next year.
China announced in October that it would upgrade its flood-prevention infrastructure by issuing 1 trillion yuan in sovereign bonds by the end of the year. Due to their inclusion in the budget, the initial 3% deficit target for 2023 was raised to 3.8% of GDP.
Though economic growth is expected to be about 5% this year, experts noted that this is in contrast to a weaker 2022 due to COVID, and that greater fiscal support may be required to achieve a similar level in 2024.