China will take further measures for the increased fiscal funds to directly benefit businesses and people, in a bid to enhance the foundation for economic recovery and growth. Full delivery of the financial policy measures will help support the real economy and help market entities through difficulties. A host of steps were adopted at the State Council’s executive meeting chaired by Premier Li Keqiang on Aug 17.

The special transfer payment mechanism, designed to channel this year’s increased fiscal funds straight to prefecture and county-level governments and directly benefit businesses and people, is an important step in supporting primary-level governments in maintaining stability in the six key areas and enhancing protections in another six priority areas. General Secretary Xi Jinping has stressed the need to bolster macro policy buffers against the COVID-19-induced effects, urging a more proactive and impactful fiscal policy that puts funds to best use and effectively plays a crucial role in stabilizing the economy. Premier Li Keqiang has required establishing an effective and secure special transfer payment mechanism for all new fiscal funds to go straight to prefecture and county-level governments as soon as possible.

By early August, among the 2 trillion yuan in increased fiscal funds, 300 billion yuan had, in large measure, been used for tax and fee cuts; and out of the 1.7 trillion yuan under the special transfer payment framework, apart from the reserved fund of a set proportion raised from the special treasury bonds for COVID-19 control, 97.8 percent had been distributed to prefecture and county-level governments.

The enforcement of this policy has effectively boosted tax and fee cuts, and bolstered fiscal resources at the primary level. The policy is making a difference in supporting market entities, stabilizing jobs and ensuring people's livelihood, and has driven the economic rebound.

“The special transfer payment mechanism has delivered notable outcomes, showing the decision is right, and the intensity appropriate,” Premier Li said.

Going forward, prefectures and counties will be guided to promptly channel the allocated funds to market players and people's livelihood. Steps will be taken to redress any tardiness in fund allocation or utilization.

The allocation, disbursement and use of funds will be tracked on a regular basis. A special treasury account reconciliation mechanism will be set up for the directly funneled funds, to ensure clear bookkeeping, detailed usage, and matching accounts.

Rigorous fiscal discipline must be enforced. Any fraudulent reporting, false claims, retention and embezzlement of the funds will be strictly dealt with. The meeting urged making the macro policies more targeted and effective to create a more enabling environment to help market entities survive and thrive. It called for intensifying reform, firming up confidence for development, and taking concrete steps to fulfill this year’s targets and tasks for economic and social development.

“With full awareness of various uncertainties, we must press ahead with all the reform and opening-up measures and make solid efforts to run our own affairs well. We must see that the policies introduced are delivered to the full extent, and also develop policy reserves for the coming year,” Premier Li said.

The meeting also took stock of the policy measures taken by financial departments in support of the real economy. In keeping with commercial rules, a host of measures have been adopted, including interest rate and fee cuts and deferred loan repayment in principal and interest. In the first seven months this year, these measures saved businesses over 870 billion yuan, and support for micro and small enterprises has been significantly enhanced.

“In view of the COVID-19 impact, financial institutions have notably intensified their support for the real economy, especially for micro, small and medium-sized businesses. Their efforts have paid off,” Premier Li said. “Unlike previous unforeseen situations, the novel coronavirus has hit smaller businesses directly. The financial and fiscal support has been instrumental in staving off massive business closures and job losses.”

The meeting required continued efforts to deliver the financial support policies for lessening corporate burdens.

Liquidity will be kept reasonably sufficient, without resorting to massive stimulus. Instead, direct, structural monetary policy tools will be better leveraged to make sure the money goes where it is needed the most and is primarily channeled to the real economy, especially to smaller firms.

The financial support policies will be made more accessible. Small and medium banks will be supported to employ big data in better meeting the needs of businesses, and the transmission mechanisms improved, to benefit as many companies as possible. Reform on the loan prime rate (LPR) will be deepened to guide lending rates further downward.

The re-lending and re-discount quota will be fully utilized to issue concessional-rate loans, develop new credit instruments for micro and small businesses, and support the issuance of credit-backed loans. These measures will help boost financing for more micro and small firms at a lower cost this year.

Checks will be conducted against unwarranted and against-regulation bank charges. No arbitrary charge or undue additional condition on loans is allowed.

“Lending support from financial institutions to micro and small businesses should be set at an appropriate degree so that it will be sustainable,” Premier Li said. “While keeping such lending reasonably sufficient, logjams in monetary policy transmission must be removed. Financial risks should be guarded against to make banking services for supporting the real economy more sustainable.”