China's Pledge to Implement Proactive Fiscal Measures to Drive Economic Growth in 2024

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In 2024, China has pledged to enhance its fiscal policy in order to revitalize its struggling economy.

Friday's announcement came after a gathering of senior Communist party officials, and it coincided with Moody's decision to revise China's credit rating outlook from stable to negative. The ratings agency attributed this change to concerns about long-term economic growth and ongoing challenges in the Chinese property market.

During the meeting on Friday, chaired by leader Xi Jinping and attended by the powerful 24-member Politburo, officials vowed to increase domestic demand and stabilize foreign trade and investment. The official Xinhua news agency released a readout of the meeting, stating that there is a need to continue implementing proactive fiscal policy and prudent monetary policy next year, with an emphasis on strengthening proactive fiscal policy moderately and improving its quality and efficiency.

Fiscal policy involves using taxation and government spending to impact the economy, while monetary policy refers to central banks' decisions to influence borrowing costs and manage inflation.

Officials also emphasized the importance of proactively preventing risks in crucial areas and maintaining a bottom line of preventing systemic risks.

A bank clerk counts RMB (renminbi) yuan banknotes during a money-counting skills contest in Nantong city, east China's Jiangsu province.

Xu jingbai/Imagine China/Reuters/File

Chinas real estate crisis is coming for its massive shadow banks

The Politburo convenes monthly to deliberate on policy and determine key issues. Its December meeting, as well as the upcoming annual Central Economic Work Conference, usually establish the economic policy direction for the following year.

The meeting on Friday occurred at a pivotal moment for the world's second largest economy, which is grappling with worsening challenges.

The ongoing property market downturn in China has had a widespread impact, creating turmoil in the shadow banking system and putting pressure on debt-ridden local governments. Additionally, some of the country's largest developers have already defaulted. According to Moodys, Chinas annual economic growth rate is expected to slow to 4% in 2024 and 2025, and to average 3.8% annually from 2026 to 2030. They also stated that structural factors, such as weaker demographics, could lead to a decline in potential growth to around 3.5% by 2030.

China is expecting growth of "around 5%" this year. By comparison, in the decade before the pandemic, the Chinese economy grew 7.7% a year on average, according to BlackRock.