Official stresses debt risk management, consumption are key to growth in 2023

China will strengthen fiscal policy adjustment and optimize policy mix to walk the fine line between supporting growth and defusing systemic risks, and will step up fiscal expansion appropriately in 2023 to aid economic recovery, Finance Minister Liu Kun said.

Economists said such an approach would provide a significant lift to growth this year, with the country's deficit-to-GDP ratio expected to increase from last year.

Their comments emerged after Liu said in an interview with Xinhua News Agency, which was published on Tuesday, that China's economic recovery is not yet solid as demand has been contracting amid supply disruptions, weakening expectations and volatile external environment.

Elaborating on the key decisions taken at the Central Economic Work Conference in mid-December, like requiring fiscal policy to be stepped up and made more efficient, Liu said fiscal expenditure will be expanded this year, with an optimized mix of fiscal deficit, local government special bonds and fiscal subsidies for interest expenses. The government will also use local government special bonds to drive investment and increase transfer payments from the central government to less-developed areas, Liu said.

Fiscal policy will also be made more efficient with more targeted tax breaks and fee-deduction policies to lessen financial burdens on businesses effectively.

Analysts said they expect stronger fiscal spending this year. Ding Shuang, an economist at Standard Chartered Bank, said in a Caixin report that he expects a fiscal deficit ratio of slightly higher than 3 percent this year.

Gao Ruidong, chief macro economist at Everbright Securities, said he expects the deficit ratio to exceed 3.1 percent as part of an expansionary fiscal policy for steady economic recovery.

China has set the deficit-to-GDP ratio at around 2.8 percent for 2022 and at around 3.2 percent for 2021.

"This year, we expect fiscal spending structure to be optimized. Fiscal spending could lean more heavily on consumption to substantially expand domestic demand," Gao said on Wednesday.

In a similar vein, Wu Ge, chief economist of Changjiang Securities, suggested that fiscal policy should offer greater support to households in order to drive consumption, which will likely be the top priority in this year's recovery agenda.

The expected increase in fiscal spending will also create fresh business prospects for multinational corporations operating in China as it broadly boosts market sentiment and helps rev up consumption, said Shi Yinghua, a professor at the Chinese Academy of Fiscal Sciences.

In the Xinhua interview, Finance Minister Liu said that though the imbalance between fiscal revenue and spending remains acute, the government will not hold back expenditures that can improve people's livelihoods.

The minister has also put fresh emphasis on strengthening government debt regulation and curbing local government debt risks.

He said China will standardize the management of local government financing vehicles to guard against related debt risks.