China has Pledged to Adopt a “Proactive” Fiscal Policy in 2024 to Stimulate and Enhance its Economy.

China has declared its intention to reinforce its fiscal policy in 2024 as a means to invigorate its sluggish economy. This announcement came after a gathering of high-ranking Communist party officials and shortly after Moody’s downgraded China’s credit rating outlook from stable to negative. Moody’s pointed to risks associated with “structurally and persistently lower medium-term economic growth” as well as ongoing challenges in China’s real estate sector as the reasons for the downgrade.

During Friday’s meeting, presided over by leader Xi Jinping and attended by the influential 24-member Politburo, officials pledged to take further actions to bolster domestic demand and stabilize foreign trade and investment. This commitment was conveyed in a statement released by the official Xinhua news agency.

The statement emphasized the need for the upcoming year to maintain the implementation of a proactive fiscal policy and a cautious monetary policy, with a particular emphasis on moderately strengthening the proactive fiscal policy while enhancing its quality and efficiency. Fiscal policy involves the use of taxation and government spending to influence economic conditions, while monetary policy typically involves decisions made by central banks to regulate the cost of borrowing and control inflation.

Additionally, the officials emphasized the paramount importance of risk prevention in critical sectors and reiterated their commitment to ensuring that no systemic risks would materialize.

The Politburo typically convenes once a month to deliberate on policies and make decisions on significant matters. The December meeting, in conjunction with the annual Central Economic Work Conference anticipated later this month, typically establishes the direction for economic policies in the upcoming year.

Friday’s meeting assumed particular significance for the world’s second-largest economy, which is grappling with deepening challenges. A protracted downturn in the property market has had repercussions throughout the broader economy, triggering disruptions in the extensive shadow banking system. Debt-ridden local governments are also facing mounting pressure due to the repercussions of the struggling property market, with some of China’s major developers already experiencing defaults.

Moody’s, in its assessment on Tuesday, forecasted a slowdown in China’s annual economic growth rate to 4% in 2024 and 2025, with an average of 3.8% per year from 2026 to 2030. The agency attributed this decline to structural factors, including demographics, which could lead to a decrease in potential growth to approximately 3.5% by 2030.

China is anticipating economic growth of approximately 5% for the current year. To provide context, in the ten years leading up to the COVID-19 pandemic, the Chinese economy experienced an average annual growth rate of 7.7%, as reported by BlackRock.