China vows ‘proactive' fiscal policy to boost economy in 2024

China has announced plans to strengthen its fiscal policy in 2024 in order to boost its economy. The decision comes after Moody’s recently downgraded China’s credit rating to negative. The downgrade was due to concerns about China’s medium-term economic growth and ongoing troubles in its property sector.

During a meeting chaired by leader Xi Jinping and attended by the Politburo, officials pledged to expand domestic demand and stabilize foreign trade and investment. They emphasized the need for proactive fiscal policy and prudent monetary policy to improve the quality and efficiency of economic measures. The officials also emphasized the importance of preventing risks in key areas and ensuring that no systemic risks occur.

The Politburo meetings, held once a month, are crucial for discussing policy and making decisions on major issues. The December meeting, along with the annual Central Economic Work Conference, typically sets the economic policy tone for the upcoming year.

China is currently facing economic challenges, including a downturn in the property market that is affecting the broader economy and causing turmoil in the shadow banking system. Debt-ridden local governments are also under pressure due to the property market situation, and some major developers have already defaulted.

Moody’s predicts that China’s annual economic growth rate will slow to 4% in 2024 and 2025, and average 3.8% per year from 2026 to 2030. Structural factors, such as weaker demographics, could drive a decline in potential growth to around 3.5% by 2030. China is aiming for growth of around 5% this year, compared to an average of 7.7% in the decade prior to the pandemic, according to BlackRock.