The higher spending announced, while contingent liability risks for the government remain elevated, adds to medium-term pressure on China’s fiscal finances, Fitch said in a research note.
In its December 2023 Global Economic Outlook, the rating agency projected China’s economy would expand by 4.6 per cent this year.
Though the headline fiscal deficit and special bond issuance figures announced at the NPC were in line with expectations, the Fitch-adjusted fiscal deficit pointed to a loosening of fiscal policy relative to the rating agency’s previous assumptions.
Overall demand remains subdued, despite some consumer sector bright spots.
Fitch has long viewed fiscal risks in China as higher than the official government debt metrics suggest, given perceptions that these entities carry implicit state support.
It expects the authorities to maintain accommodative monetary policy settings. The economy is still struggling with broad-based deflationary pressures, keeping inflation far below the 3-per cent target announced during the NPC session. Fitch expects some further modest monetary easing, but the risk of more persistent deflation remains significant.
The relatively modest size of China’s advanced sectors means that it may be difficult for rapid growth in these areas alone to offset weakness in other parts of the economy.
Fibre2Fashion News Desk (DS)