Financial balance: Residential buildings under construction at a development in Shanghai. Regulators have been relaxing property curbs across China to bolster consumer confidence. — Bloomberg
BEIJING: Securing stable economic growth while maintaining financial viability lies at the core of China’s pursuit of national security amid intensified external uncertainties and a lingering real estate downturn, say leading economists.
To achieve these goals, they suggested taking decisive measures such as strengthening medium-term financial planning, optimising supervision over local government debt, replacing local government debt with longer-term treasury bonds and establishing a central government-financed institution to acquire idle housing stock.
They made the remarks at a recent forum as the markets eagerly await China’s next steps to revive the economy on the financial front.
The forum, held by the Central University of Finance and Economics (CUFE) in Beijing, was themed around coordination of development and security, focusing on the areas of public finance, financial system, public governance and supply chains.
“Financial safety is closely interconnected and inseparable with security in economic and financial areas,” said Ma Haitao, president of CUFE and a senior expert, stressing that a robust financial system is the last defence against various economic and financial risks.
Ma said financial safety refers to ensuring steady financial revenue and expenditure over the short term, achieving cross-annual and cross-cyclical financial balance in the medium and long term, along with reserving adequate space and resources to resist any potential shocks, including natural disasters, political incidents as well as other economic and social hazards.
Ma cautioned that China’s financial security is now facing challenges such as slowing financial revenue growth, rising local government debt and an ageing population, while the debt balance of local governments had nearly doubled from 2019 to 2023, leading to rising debt servicing costs.
Official data showed that from January to August, the country’s general public budget revenue decreased by 2.6% year-on-year.
“It’s important to strengthen medium-term fiscal planning to achieve financial balance across years and economic cycles,” Ma said.
It is a crucial transformation that can help correct any misalignment between the country’s economic and social five-year plans and financial planning.
Establishing a long-term mechanism of government debt management also holds the key, said Ma, who urged to intensify supervision by the National People’s Congress, the country’s top legislature, over local governments’ debt budget and management, to avoid any excessive project construction that adds to debt.
Speaking at the forum, Li Daokui, director of Tsinghua University’s Academic Centre for Chinese Economic Practice and Thinking, also said it is imperative to address the situation that local governments face extremely tight cash flows while banks are flush with liquidity.
“Failure to resolve this issue will impact people’s sense of gain, as well as political and social stability,” Li said, stressing that the key to social and political stability lies in forestalling drastic macroeconomic fluctuations.
Affected by infrastructure and real estate cycles, Li said China’s macroeconomy now faces downside risks. — China Daily/ANN
