Bonds Jun 10

China to target bond proceeds at most in need 

Payments plan proposed to funnel record amounts raised in debt sales to businesses hit by coronavirus. 

by Nadeem Xu
China to target bond proceeds at most in need 
Pay it back: Chinese leader Xi Jinping and premier Li Keqiang.

(ATF) China will set up a special transfer payment mechanism to ensure that newly increased fiscal funds this year will directly benefit businesses and people, according to a report on the government website.

A host of related arrangements were decided at the State Council’s executive meeting chaired by Premier Li Keqiang on Wednesday.

Ensuring that this year’s increased fiscal funds go straight to primary-level governments and directly benefit businesses and people is a key new piece of Communist Party policy.

Chinese leader Xi Jinping stressed the need to bolster macro policy buffers in coping with coronavirus-induced shocks. He urged a more proactive and impactful fiscal policy to see that money is put to best use and stabilises economic performance.

Premier Li Keqiang announced in the Government Work Report that the deficit-to-GDP ratio this year is projected at more than 3.6%, up one trillion yuan over last year. In addition, 1tn yuan in government bonds for virus control will be issued. The 2 trillion yuan will be transferred in full to local governments, and a special transfer payment mechanism will be established to ensure that funds go straight to ensure employment, meet basic living needs, and protect market entities.

“Both primary-level governments and companies are looking forward to benefiting from these funds as soon as possible. This measure must be promptly and fully implemented,” Li said.

Tax cuts

This year, the government will cut taxes and fees by 2.5 trillion yuan ($352.11 billion). This will effectively ease the difficulties faced by businesses, especially micro, small, and medium-sized ones, and meet the pressing needs of people in need. Yet it will also lead to sizable shortfalls in the fiscal resources of prefecture and county governments, according to the meeting.

The 2tn yuan in new fiscal funds, made available by raising the budget deficit and issuing special treasury bonds for COVID-19 control, will go straight to prefecture and county governments. This will support the local governments in providing relief to the smaller firms, self-employed individuals and vulnerable groups who have been hit hardest by COVID-19, enhancing infrastructure building, particularly in public health, and meeting expenditures for COVID-19 control.

“The economy has been steadily reopening, but economic activity is not yet back to the level of the same period last year. We are also faced with great uncertainty in the global environment. The top priority now is to help businesses and the people resolve their pressing difficulties,” Li said.

The meeting decided that a special transfer payment mechanism will be set up to ensure that all new funds this year will be fully channeled to prefecture and county governments at the earliest possible time by increasing transfer payments from central to local governments and arranging transfer payments from government-managed funds. Prefecture and county governments must create logs to keep track of the use of funds and ensure that each item of expenditure is accounted for.