China’s Finance Minister Reiterates Plan for Fiscal Expansion

China’s Finance Minister Liu Kun reiterated plans to appropriately expand fiscal spending to aid economic recovery, while pledging to prevent systemic risks.

(Bloomberg) — China’s Finance Minister Liu Kun reiterated plans to appropriately expand fiscal spending to aid economic recovery, while pledging to prevent systemic risks.

Liu said, according to an interview with the official Xinhua News Agency on Tuesday, that China’s recovery is still not solid. He cited risks including a contraction in demand and disruptions to supply.

The finance chief said the government needs to expand fiscal spending, use proceeds from special government bonds to boost investment in more areas, as well as increase transfer payments to less-developed areas. 

Liu also vowed to prevent systemic risks from government debt. He said risks are controllable, with outstanding government debt at below 60% of GDP — a level that’s lower than in major economies. Liu said the country will push forward transforming local government financing-platform companies in a market-oriented way.

China will ensure sufficient fiscal spending on Covid controls, according to Liu, who didn’t elaborate on the issue.

China relied on local debt-fueled infrastructure investment to bolster growth in 2022 as the economy was battered by Covid outbreaks, a property crisis and weakening in the outlook for major trading partners.

Top leaders have vowed to maintain a “necessary” scale of public spending in 2023, but the scope for further fiscal stimulus is shrinking as local finances are under unprecedented stress and their debt burdens are becoming unsustainable.

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