Fiscal Policy and the Government Balance Sheet in China
IMF Working Papers, August 4, 2023
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- Fiscal Policy and the Government Balance Sheet in China
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Bibliographic details
- Authors: Waikei R Lam, Marialuz Moreno Badia
- Published: August 4, 2023
- Series: IMF Working Papers
- DOI: https://doi.org/10.5089/9798400248221.001
Summary
- Presents the most comprehensive estimates of China’s government balance sheet to date.
- Shows how major shifts in fiscal policy over the last two decades shaped the health of the public sector prior to the Covid-19 pandemic.
- At US$12.5 trillion, China has the largest stock of financial assets in the world.
- China’s net financial worth as a percent of GDP—though still higher than the large majority of countries—has declined over the last decade.
- The decline traces back to the turn of the century when China undertook a major restructuring of its state-owned enterprises but left important shortcomings in the intergovernmental fiscal system unaddressed.
- Reform momentum stalled in the aftermath of the global financial crisis, leading to high leverage and falling profitability among state-owned enterprises (SOEs).
Key findings and statistics
- Stock of financial assets: US$12.5 trillion.
- Net financial worth as a percent of GDP: declined over the last decade (exact percent not specified in source content).
- Paper length: 55 pages.
- Publication metadata:
- Authors: Waikei Raphael Lam, Marialuz Moreno Badia
- Date: August 4, 2023
- Series: Working Paper No. 2023/154
- Issue: 154
- Volume: 2023
- DOI: https://doi.org/10.5089/9798400248221.001
- ISBN: 9798400248221
- ISSN: 1018-5941
- Stock No: WPIEA2023154
Context and drivers of balance-sheet outcomes
- Major restructuring of state-owned enterprises at the turn of the century materially altered public-sector balance-sheet composition.
- Important shortcomings in the intergovernmental fiscal system were left unaddressed during that period.
- After the global financial crisis, reform momentum stalled, which compounded risks by producing high leverage and falling profitability among SOEs.
- These historical policy shifts and institutional gaps help explain the trajectory of China’s public-sector financial position leading up to the Covid-19 pandemic.
Implications emphasized in the paper
- Despite having the largest stock of financial assets globally (US$12.5 trillion), China faces a weakening of net financial worth relative to GDP over the last decade.
- The combination of legacy restructuring decisions and stalled reforms contributed to increased fiscal and enterprise-sector vulnerabilities prior to the Covid-19 shock.
IMF Working Paper — "Fiscal Policy and the Government Balance Sheet in China", Waikei Raphael Lam and Marialuz Moreno Badia, August 4, 2023, Working Paper No. 2023/154.
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- Working Paper