China will step up its efforts on both the fiscal and monetary fronts to expedite delivery of its freshly unveiled economic package for recovery, to revitalize the market and ensure stable overall economic performance, officials said on June 2.
Ou Wenhan, assistant minister of finance, confirmed at a news briefing on June 2 that the Finance Ministry will promptly redouble fiscal policy intensity by expanding tax credit refunds, expediting issuance of local government special-purpose bonds, boosting consumption and supporting people's essential needs.
"Among the 33 recovery measures recently decided by the State Council, 24 are fiscal measures," Ou said, referring to a package of 33 clearly targeted measures issued by China's Cabinet this week, covering six major aspects of economic fundamentals.
Specifically, Ou said that both central and local fiscal authorities will accelerate the issuance of local government special-purpose bonds in a steady and orderly manner. The scope of usage for such bonds will be appropriately widened to cover new infrastructure and new energy projects.
Subnational fiscal authorities should ensure that the funds released from these bonds are distributed to projects in a timely manner. Projects with advanced early-stage preparations or which are already undergoing construction shall be prioritized in receiving funds from these bonds to generate real economic activities at the earliest possible date. All such bonds will be issued by the end of June and are due to be utilized by the end of August.
A total of 2.03 trillion yuan ($304 billion) in local government special bonds has been issued across localities over the first five months of this year, and these have played a role in stabilizing investment and growth, Ou said. The country has set its annual quota for local government special bonds at 3.65 trillion yuan.
In addition, the policy of refunding value-added tax credits will be extended to more industries, reaching 142 billion yuan in tax refunds. Fiscal efforts will also be put in place to sustain market players, boost consumption and support people's essential living needs, Ou said.
A quicker and more effective use of local government special-purpose bonds is of critical importance this year to keep growth stable, said Gao Ruidong, chief economist at Everbright Securities. He said that as COVID-19 induced shocks have undoubtedly hit household incomes and consumer demand, and dampened private investment, infrastructure investment has now emerged as a key measure to quickly stabilize growth, and most of these funds come from local government special bonds.
Meanwhile, Pan Gongsheng, vice-governor of the People's Bank of China, said the country's central bank will further step up monetary support, implement relevant measures at an early date and bring into full play the policy effects of stabilizing the economy and helping enterprises out of difficulties.
Pan said the central bank will bring forward its pro-growth monetary policy package focusing on promoting long-term and sustainable economic development, keeping the job market and prices stable, maintaining balanced international payments and guiding financial institutions to stick with market-based practices to prevent financial risks.
Specifically, on June 1, an executive meeting of the State Council urged the country's policy banks to increase credit lines by another 800 billion yuan to provide financial support for infrastructure construction. A mechanism will be set up to meet the needs of key projects.
Ying Xiwen, a senior researcher at China Minsheng Bank, said promoting the construction of advanced infrastructure with increased funding support will help expand effective investment, buffer short-term economic downward pressures and promote high-quality development in the long-term.
Ying added that the new lending quota of 800 billion yuan, an amount equivalent to about one-fifth of the medium to long-term loans created in the infrastructure sector in 2021, can effectively alleviate the current lack of demand for longer-term loans and bolster credit expansion.
Recently, several overseas investment banks have lowered their forecasts for China's growth potential this year. US investment bank JPMorgan cut its full-year growth forecast for China from 4.3 percent to 3.7 late last month, while Swiss bank UBS trimmed its forecast for China's economic growth this year to 3 percent, indicating that it expects greater stimulus from China to achieve the 5.5 percent growth target this year.
Su Jingchun, an associate professor at the Chinese Academy of Fiscal Sciences, said that so far, both the scale and intensity of fiscal and monetary policy support are sufficient to support recovery. What is more important, she said, is to fully implement these incentives on the ground and ensure that the real economy fully feels the benefits of such measures.
There are still notable impediments in policy implementation which need to be promptly addressed, such as in accelerated fiscal spending and quick issuance of local government special purpose bonds, she pointed out.
"More efforts are required to further flesh out each and every measure to make sure all of this policy support is available to the market. This will help to generate growth and create greater space for macro policy moves," she noted.
