BEIJING: China will maintain fiscal expansion this year to spur an economic recovery, Vice Finance Minister Wang Dongwei said on Thursday, reinforcing market views that public spending will be the government’s main tool to lift growth.

The government will “increase the intensity of fiscal macroeconomic adjustments, implement a proactive fiscal policy to consolidate and enhance the positive trend of economic recovery,” Wang said at a press conference.

China’s economy has been stuck in an uneven and sputtering post-COVID recovery, with persistent deflationary pressures, a prolonged housing downturn and geopolitical challenges keeping alive calls for more policy support.

An official survey this week pointed to a still-underperforming economy at the beginning of 2024 in need of more policy support as it showed manufacturing activity contracted again last month due to persistently weak demand.

The authorities will “maintain a necessary intensity in fiscal spending” this year and keep a certain amount of transfer payments to local governments, Wang said. Fiscal policy will focus on expanding domestic demand and the government will use fiscal subsidies, loan interest subsidies and tax incentives to support tech innovation and advanced manufacturing, he said.

China’s fiscal revenue rose 6.4% in 2023, picking up significantly from a 0.6% increase in COVID-hit 2022, while fiscal spending rose 5.4% in 2023, slowing from a 6.1% rise in 2022, Wang said, adding revenues will pick up further this year.

Fiscal revenue fell 8.4% in December from a year earlier, reversing a 4.3% rise in November, according to Reuters calculations based on the official data. Fiscal spending rose 8.3% in December, compared with a 8.6% rise in November.

In the face of stuttering growth, the government is drawing on a well-used playbook of using government debt to fund infrastructure work to help lift the economy as consumers are wary of spending and businesses lack confidence to expand.

However, in an effort to assert more control over how money is invested, the government has instructed heavily indebted local governments to delay or halt some state-funded infrastructure projects, Reuters reported last month.

Chinese leaders agreed at a key meeting on the economy at the end of last year to run a budget deficit of 3% of gross domestic product in 2024 while other fiscal support may be covered by off-budget debt, Reuters reported last month.