China spent hundreds of billions of dollars last year on programs to boost economic activity, including large infrastructure projects and cash distributions to its citizens.
This amount of spending is unlikely to be carried over to 2021. China has long been wary of increasing its debt burden, a concern some analysts suspect will lead authorities to cut budget support this year.
“The budget deficit is expected to be reduced in 2021 to ensure sustainability while avoiding a fiscal cliff,” Standard Chartered analysts wrote in a research note this week. They estimated that China’s budget deficit widened to 8.6 percent of GDP in 2020, an increase of three percentage points from the previous year.
Like other countries, China must figure out how to balance the need for at least one more stimulus as the recovery continues. with a growing debt burden.
After all, last year’s growth rate was still China’s slowest in decades. And there are a few weak spots in the economy: Retail sales have fallen behind, for example, suggesting that people are still reluctant to spend money as the country struggles to eradicate completely. Covid-19 epidemics.
Larry Hu, head of the Chinese economy at Macquarie Group, said he expects the rate of infrastructure spending to slow to 2% from 3.4% last year. He also suspects that local governments will issue fewer special bonds, a form of spending primarily used to build infrastructure projects, including 5G networks, railways and airports.
But he doesn’t think Beijing will be too aggressive in slashing fiscal stimulus – a sentiment that has recently been echoed by some in Beijing.
Chinese leaders have pledged not to radically change economic policy this year.
“We are facing a paradox,” Ma Jun, a policy official at the People’s Bank of China, told an economic conference in January. “We have to change our monetary policy, but it cannot be too quick.”
Guo also warned that bad loans could continue to pose risks to the financial system, which could slow the pace of the recovery.
Scores of large state-owned companies have declared bankruptcy or defaulted on their loans over the past year – a worrying trend for an industry Chinese President Xi Jinping has wanted to strengthen as a major driver of economic activity and innovation. State-owned enterprise defaults reached $ 15.5 billion in 2020, up 220% from the previous year, according to recent estimates from Jinan-based Zhongtai Securities.
China also has other challenges.
By failing to set a GDP target, some experts – including Yang Weimin, the former secretary-general of the National Development and Reform Commission – argued that China may be losing the direction it needs to be. fix to keep its growth at the same rate. But others, including central bank politician Ma, have warned that overly ambitious targets could cause local governments to borrow too much, increasing the risk of accumulating “hidden” debt.