China to expand fiscal spending to support economic recovery

China will appropriately expand fiscal spending as the government aims to provide "more direct and effective" fiscal support for economic recovery in 2023, according to the Ministry of Finance.

"We will appropriately expand fiscal spending by optimizing the tool mix of fiscal deficit, local government special bonds and interest subsidies to ensure the funding support for national major strategic tasks," the ministry said in a statement on Thursday after holding a meeting to discuss next year's fiscal work.

The ministry aims to strengthen the role of government investment in driving and guiding social investment, as part of its efforts to make the function of proactive fiscal policy "more direct and effective", the statement said.

Spending focus will be given to the key areas of science and technology, rural vitalization, regional major strategies, education, people's basic living needs and green development, the ministry said.

Experts said the commitment to properly expand fiscal spending signaled that the country might raise next year's deficit-to-GDP ratio and annual quota of local government special bonds to strengthen growth stabilization efforts.

Wang Qing, chief macroeconomic analyst at Golden Credit Rating International, said he expects the country may set the deficit-to-GDP ratio at about 3.1 percent in 2023, up by 0.3 percentage point from the previous year, while next year's annual quota of special bonds may reach about 4 trillion yuan ($575.6 billion).

Such moves can ensure the intensity of government spending and facilitate economic rebound while cushioning the impact of a decrease in land sales revenue on local government fiscal conditions, Wang said.

The finance ministry will also work to improve the policy on tax and fee cuts to alleviate the difficulties facing enterprises, continuously expand transfer payments to local governments, and step up efforts to stabilize foreign trade and investment while promoting recovery in domestic consumption.

Corporate governance of local government financing vehicles will also be improved to better resolve the risk of implicit debts, the ministry said.

China's tax and fee cuts in recent years have lowered the ratio between the country's tax revenues and GDP to 15 percent in 2021, versus 17 percent in 2018, the ministry added.