The Chinese government spending in key sectors in 2018 saw a faster pace of growth as policymakers moved towards a more proactive fiscal policy to stabilize growth.
According to the Ministry of Finance (MOF), expenditure grew at a robust 8.7 percent to a record 22 trillion yuan (over $3.2 trillion).
Expect more of the same in 2019.
“To accomplish the tasks called for at the central economic work conference, which set the tone for this year, proactive fiscal and economic development policies will continue,” said Hao Lei, vice-director of the MOF budget department.
Speaking of last year, he said, “First, we maintained a relatively strong, fast pace of public spending, especially in key areas to support the real economy. Second, the expenditure framework was improved, with solid spending in key sectors such as poverty alleviation, technological innovation, and social security improvement. Finally, the central government made more transfer payments to local governments, especially to support those areas that have experienced fiscal pressures.”
China saw tax cuts worth 1.3 trillion yuan ($191 billion) in 2018. Building on that foundation, the country’s finance ministry has pledged to implement even more tax and fee cuts this year. More reductions are expected on value-added tax, individual income tax, and tax cuts targeted towards small businesses.
“We’re insisting on three principles: to accelerate the pace of tax cuts through continued reforms, focusing on supporting the development of the real economy, and to take a multifaceted approach on tax policy,” said Xu Guoqiao, Inspector of Administrative Secretary at MOF.
While a widening gap brought about by lower tax revenues and expanding government spending may spark concerns on whether the local government debt is manageable, MOF is ready to address any potential risks.
“In general China’s local government debt is manageable. Overall, China’s sovereign debt-to-GDP ratio is below the international warning level. The ministry will further regulate local governments and prevent potential risks brought by hidden debt,” Hao said.