January 23, 2019 / 3:02 AM / 8 months ago

China says will step up fiscal spending this year to support economy

BEIJING (Reuters) - China will step up fiscal spending this year to support its economy, focusing on further cuts in taxes and fees for small firms, finance ministry officials said on Wednesday.

FILE PHOTO: A worker welds as he stands on the metal frame of a building at a construction site in Beijing, China, December 12, 2018. REUTERS/Thomas Peter

Mounting pressure on the world’s second-biggest economy pushed growth last year to its lowest since 1990 even as Beijing stepped up stimulus measures and spurred banks to lend more.

The government may unveil more fiscal stimulus during the annual parliamentary meeting in March, including bigger tax cuts and more spending on infrastructure projects, economists say.

China’s fiscal spending rose 8.7 percent to 22.1 trillion yuan ($3.3 trillion) in 2018, while revenue increased 6.2 percent to 18.3 trillion yuan, said Li Dawei, an official at the finance ministry.

China achieved its 2018 fiscal revenue target despite extensive tax cuts last year, Li added.

Beijing delivered about 1.3 trillion yuan of cuts in taxes and fees in 2018.

Finance Minister Liu Kun said this month that China will further lower taxes and fees this year. The government is also studying a plan to reduce social security fees to lighten the burden on small companies, Liu said.

Policy insiders also expect Beijing to cut the value-added tax, which ranges from 6 percent for the services sector to 16 percent for manufacturers.

Policymakers’ pledge of more aggressive tax reductions in 2019 has fanned expectations that the annual budget deficit ratio could be lifted to 3 percent of gross domestic product.

The government had lowered the 2018 deficit target to 2.6 percent of GDP from 3 percent the previous year - the first cut since 2012.

The finance officials, speaking to reporters on Wednesday, did not report the size of the 2018 budget deficit.

China will “appropriately” step up fiscal spending in 2019, said ministry official Hao Lei.

Fiscal revenue growth is expected to slow this year, Li said.

Earlier, sources told Reuters the deficit target could rise from 2.6 percent of GDP but is likely to be kept below 3 percent.

LOCAL INDEBTEDNESS

The slowdown in China has also raised concerns of rising indebtedness of local governments as they ramp up measures to support growth.

China must be on guard against “black swan” risks while fending off “gray rhino” events, President Xi Jinping said on Monday.

A “black swan” event refers to an unforeseen occurrence that typically has extreme consequences, while a “gray rhino” is a highly obvious yet ignored threat.

Local governments and state organizations should find a balance between stabilizing growth and fending off risks, controlling the pace and intensity of such policies, Xi warned.

China will be more strict in curbing local government bond risks and any form of hidden debt, Hao said.

Outstanding local government debt stood at 18.39 trillion yuan at the end of 2018, Hao said, adding that local government debt risks remain manageable overall.

Total outstanding local government debt was 16.47 trillion yuan at the end of 2017, according to the finance ministry’s 2018 work report.

Special bonds are usually issued to fund public works spending including infrastructure projects or land development.

At the end of 2018, the State Council, or cabinet, approved a 2019 quota for new local government bond issuance of 1.39 trillion yuan, enabling local authorities to start issuing debt from January.

Local government bond issuance typically begins in March, following approval of quotas at the National People’s Congress, or parliament.

Special purpose local bond issuance is expected to be completed by September, Hao said.

Local government special bond issuance was 1.95 trillion yuan last year, the finance ministry said in a separate statement on Wednesday, sharply up from 800 billion yuan of special bond issuances in 2017.

That brings the total outstanding local government special bond issuance to 7.39 trillion yuan as of end-2018, it said.

That compares with 6.14 trillion yuan at end-2017, according to the ministry’s 2018 work report.

Reporting by Yawen Chen and Martin Pollard; Writing by Ryan Woo; Editing by Shri Navaratnam and Richard Borsuk

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