China’s Economic Struggle Post-COVID and Fiscal Policy Response


  • China’s economy experienced uneven recovery in 2023 amid COVID-19 aftermath challenges such as persistent deflationary pressures, lengthy housing market slump, and geopolitical issues.
  • They registered a 5.4% increase in fiscal spending in 2023 with plans to continue such fiscal spending intensity in 2024.
  • Despite these economic challenges, all 31 provincial economies reportedly achieved growth in fiscal revenues.
  • China’s manufacturing sector, however, continues to struggle due to weak demand, indicating a need for additional policy support.
  • A property crisis has significantly limited local governments’ fiscal capacity, given that income from state land sales is their primary source of funds.
  • The Chinese government has vowed to enact a proactive fiscal policy in 2024, aided by the approval of 1 trillion yuan of sovereign bond issuance in October 2023.

Overview of China’s Economy

During 2023, China’s economy showed irregular and hesitant recovery following the COVID-19 pandemic, with consistent deflationary pressures, a prolonged housing downturn, and geopolitical challenges fueling calls for increased policy support.

Fiscal Expenditure

Wang reported a 5.4% rise in fiscal expenditures in 2023, with plans to “sustain a particular intensity in fiscal investment” in 2024.

Revenue Growth in 2023

“Benefiting from economic amelioration and a low base impact due to substantial tax and fee reductions in 2022, China’s 2023 fiscal revenue demonstrated a rebounding growth,” said Wang. He further explained the general public budget revenue reached 21 trillion yuan ($2.93 trillion) in the previous year.

“Each of the 31 provincial economies have recorded growth in their fiscal revenues,” he further highlighted.

Economic Challenges

A government study, however, indicated a still underperforming economy at the onset of 2024, advocating for additional policy backing, as manufacturing activities declined yet again due to consistently weak demand last month.

The property crisis significantly impeded local governments’ fiscal capacity as income from state land sales was the top source of funds raised directly by local governments.

Proactive Fiscal Policy

Government officials committed to implementing proactive fiscal policy in 2024, backed by the approval of 1 trillion yuan of sovereign bond issuance last October, reinforcing market perspectives that fiscal expenditure will likely spearhead the rejuvenation of the economy.

For your reference, $1 equals 7.1790 renminbi.

The ongoing economic scenario in China could create fluctuations in the foreign exchange market, particularly impacting trading assets such as the renminbi and sovereign bonds.

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