China seeks balance between short-term stability and long-term growth transition
China’s annual Central Economic Work Conference was held in Beijing on December 11 and 12. Serving to set the priorities for economic policy in the next year, this year’s session was closely watched, as a robust rebound in growth in China has significant implications for the rest of the world.
In analyzing China’s overall economic outlook in 2024, the meeting assessed that China needs to overcome challenges including “lack of effective demand, overcapacity in some sectors, lackluster social expectations, certain risks and hidden problems, bottlenecks in domestic circulation, as well as the rising complexity, severity and uncertainty of the external environment,” according to the conference’s official readout.
Given this, China will follow the principle of “seeking progress while maintaining stability [and] promoting stability through progress,” in its economic policy for 2024. This means the priorities for China’s economic agenda are stability and striking a balance between short-term stability and the long-term goal of transitioning the country’s growth model. The principle of “establishing the new before abolishing the old,” which is rarely seen in previous central economic work meetings, indicates that stabilizing market expectations to avoid a downward spiral is prioritized over structural reforms to address the long-term problems of productivity.
Pledging to maintain “reasonable growth” in both quality and quantity, the conference said that the country should “strengthen counter-cyclical and cross-cyclical adjustments of macro policies and continue to implement a proactive fiscal policy and a prudent monetary policy with strengthened innovation and coordination of policy tools.”
It suggests that the government will adopt a more expansionary fiscal policy in 2024. Economists have long argued that China should adopt a more aggressive fiscal policy to allow the budget deficit to exceed the cap of 3 percent of GDP to boost its economy. In a rare and unexpected move, the central government issued 1 trillion yuan (US$141B) of additional treasury bonds in October to fund projects for natural disaster relief and prevention, widening the general-purpose budget deficit to a record-high 3.8 percent. In 2024, the budget deficit could reach about 3.5 percent. In the past, expansionary fiscal policy focused on tax rebates or infrastructure construction. As the meeting recognized that insufficient effective demand is the first problem now, expansionary fiscal policy should pay more attention to boosting consumption.
In the meantime, the meeting made it clear that among the country’s top priorities in 2024 is to continuously prevent and defuse risks in major areas, including the housing market, local government debt and small- and medium-sized financial institutions. It urged better coordination of economic and social policies to help stabilize expectations, growth and employment, and called for enhanced confidence in China’s economic recovery and long-term positive outlook.
On December 13, the Asian Development Bank revised its growth projection for China up to 5.2 percent from 4.9 percent previously, slightly above the 5 percent growth target set by the Chinese government for 2023.
For 2024, China may still set its annual growth target at about 5 percent, with a more proactive economic policy aiming to seek stronger economic recovery while pushing forward more measured structural reforms.
As the meeting recognized that insufficient effective demand is the first problem now, expansionary fiscal policy should pay more attention to boosting consumption