(Bloomberg) -- China vowed to expand fiscal spending “appropriately” next year while “optimizing” policy tools including fiscal deficit and special debt as part of efforts to support the nation’s key strategic development.

Government investment will play a stronger role in leading private investment, boosting consumption and stabilizing foreign trade and investment, according to a statement posted on the Ministry of Finance’s website Thursday.

“In 2023, a proactive fiscal policy should be strengthened to improve its effectiveness and play a more direct and effective role,” it said, citing minutes from a nationwide virtual meeting of finance officials chaired by Minister Liu Kun.

China relied on local debt-fueled infrastructure investment to bolster growth this year as the economy was battered by Covid outbreaks, a property crisis and weakening exports. Top leaders have vowed to maintain a “necessary” magnitude of public spending in 2023, but the scope for further fiscal stimulus is shrinking as local finances are under unprecedented stress and their debt burdens are becoming unsustainable.

Industrial shares gained as much as 1% in China’s onshore stock market in Friday morning trading, after dropping in the previous two sessions.

The Finance Ministry said it will increase transfer payments to local governments and “firmly stop” illegal debt building. It will continue to reduce local debt risks, strengthen the governance of local government financing vehicles, and enhance the management of state assets. Beijing has been seeking to capitalize on state-owned assets to expand investment and curb debt risks.

Fiscal policy will be more targeted, the ministry said, adding that it will focus on promoting employment and boosting market confidence. Tax support will be either extended or optimized next year in order to provide relief to companies, it said, without elaboration. 

Officials at the Central Economic Work Conference earlier this month shunned phrases such as “front-loading” infrastructure investment and “new tax cuts.” That ran contrary to the way those goals were highlighted during last year’s meeting, leading some analysts to speculate that fiscal stimulus could be scaled back in 2023.

China’s broad fiscal deficit hit a record high in the first 11 months of this year as Covid outbreaks and the housing market slump continued to erode government income. The country may need to set budget deficit at above 3% of gross domestic product next year, as it strives to improve its economic performance, former Finance Minister Lou Jiwei said on Sunday.

(Updates with more details throughout.)

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