(Bloomberg) -- China pledged more proactive fiscal policy in 2017 while vowing to enhance control over local government debt as policy makers seek to sustain steady growth and defuse risks.
Fiscal policy will be more proactive and effective, and more tax cuts will be rolled out, the Ministry of Finance according said in a statement Thursday. China will "reasonably" expand spending and improve efficacy, while strengthening management of local government debt.
The statement sets the tone for China's fiscal approach to the economy and aligns with plans announced after the Central Economic Work Conference this month. President Xi Jinping and top economic policy makers pledged a harder push to rein in risks such as asset bubbles.
China needs to assess its financial challenges and protect itself against regional hazards, the ministry said. It also urged local governments to increase the pace of debt-for-bond swaps, and vowed to enhance the risk assessment of local debts.
Meanwhile, policy makers also want to ensure they have firepower to shore up the economy, which faces growing uncertainty from a cooling property market, Federal Reserve rate hikes and the possibility of a confrontation with U.S. President-elect Donald Trump over trade.
"Local governments rely heavily on land sales for revenue, and under the current property curbs, they may face some fiscal pressure," said Wen Bin, researcher at China Minsheng Banking Corp. in Beijing. "The tax cuts would also weigh on government revenue."
To counter the revenue slowdown while maintaining a stable spending level to support economic growth, authorities must speed up local debt-to-bond swaps and boost private investment through the introduction of more public-private partnership projects, he said.
To contact Bloomberg News staff for this story: Miao Han in Beijing at mhan22@bloomberg.net, Jing Zhao in Beijing at jzhao231@bloomberg.net. To contact the editors responsible for this story: Malcolm Scott at mscott23@bloomberg.net, Jeff Kearns, Ken Wills
With assistance from Jing Zhao, Miao Han
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