Chinese officials have vowed to carry out a slew of government policies to stimulate growth following Premier Li Keqiang’s recent call to avoid a Covid-fueled economic contraction this quarter.
Ministry of Finance authorities said Thursday they would accelerate refunds of value-added taxes, make it easier for small companies to bid on government purchasing projects, and ensure that local special bonds -- which are mainly used to fund infrastructure projects -- are issued in a smooth manner, according to a ministry briefing. At a separate press conference, People’s Bank of China officials promised to step up their plans to implement monetary policy to help maintain growth.
The urgency with which government authorities talk about the economy has been intensifying in recent weeks, with Li late last month urging thousands of local officials at an emergency meeting to prevent economic growth from slipping out of a reasonable range. The State Council, China’s cabinet, has also released a list of 33 measures to support the economy and offset Covid-related damage, including additional tax breaks and favourable loans.
The country’s worst virus outbreak in two years has been easing and some of the toughest anti-Covid restrictions -- including Shanghai’s months-long lockdown -- have been lifted, but the government’s growth target of about 5.5% this year remains difficult to achieve.
Officials at Thursday’s events didn’t announce any new policies, but they did suggest authorities are heeding Li’s call to bolster growth.
Economic Stability
Assistant Finance Minister Ou Wenhan told reporters that the ministry would “push for the rapid implementation of the policies to make our due contribution to the stabilization of the economy.” And Pan Gongsheng, a central bank deputy governor, said the PBOC would encourage more foreign investment in the domestic bond market. While he added that the economy’s momentum was positive, foreign investors sold off Chinese holdings at a record pace earlier this year.
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Pan reiterated the PBOC’s pledge to take advantage of a recent reform in deposit rates to drive corporate financing costs lower. The average corporate loan rate dropped to a record low of 4.39% in the January-to-April period, down 0.22 percentage point from 2021, he added.
The deputy governor also reaffirmed the PBOC’s intention to guide banks to increase loan extensions and stabilize credit growth. Even though the US dollar strengthened significantly this year, the yuan has remained basically stable, Pan said.
The State Council included about 140 billion yuan ($20.9 billion) in additional VAT rebates in its 33-point package, taking the total planned this year in tax breaks to 2.64 trillion yuan. The finance ministry’s Ou said 1.34 trillion yuan in refunds was made in the past two months, and added authorities want to complete tax returns for small companies and manufacturing firms by the end of this month.
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As for the local government special bond program, Ou said that Chinese provinces sold 2.03 trillion yuan worth of new bonds in the first five months of the year. Nearly all of this year’s special local debt quota of 3.65 trillion yuan has already been allocated, according to the State Council, which wants all the bonds to be sold within this month.
“We will strive for early issuance and early use of proceeds, and make sure local bond sales are not affected by the outbreak,” Ou said.
The budgets of China’s local governments are extremely tight this year. Land sales income has slumped as the property market remains weak. Tax cuts are also eroding revenue, and Covid-related expenses have added to spending needs.
The central government said in March it would transfer a record 9.8 trillion yuan in payments to provincial governments this year. Ou said more than 90% of the funds has been paid out, including a one-off arrangement of 1.2 trillion yuan to support the tax cuts and to ensure people’s livelihoods.
Officials on Thursday, though, also reiterated Li’s emphasis on the need for local governments to handle their own finances. Local authorities must make sure they have funding for Covid-related expenditures on vaccinations, tests, and supplies related to outbreak prevention and control, according to Wang Jianfan, head of the finance ministry’s budget department. He said at the MOF briefing that financial contingency plans should be made to help governments at county and district levels handle emergency outbreaks.
