Fiscal spending and more tax cuts to ensure steady growth

China will step up fiscal spending this year to support its economy, focusing on further cuts in taxes and fees for small companies, finance ministry officials announced yesterday.

China’s fiscal spending rose 8.7 percent to a record high of 22.1 trillion yuan (US$3.3 trillion) in 2018, while revenue increased 6.2 percent to 18.3 trillion yuan, according to the Ministry of Finance.

Education, social security and employment took the lion’s share of public budget spending, while spending on debt interest payment and science and technology grew the fastest.

Tax revenue stood at 15.64 trillion yuan, up 8.3 percent year on year.

China’s long-term steady economic growth will ensure stable fiscal revenue, although growth might slow down due to the expected larger scale of tax and fee cuts, said Li Dawei, a senior official with the finance ministry.

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

China 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.

The finance officials did not report the size of the 2018 budget deficit.

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.­

China will “appropriately” step up fiscal spending in 2019, said Hao Lei, deputy head of the finance ministry’s budget bureau.

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

The bond issuance by the country’s local governments dropped mildly last year and the debt level stayed within a reasonable range, the finance ministry said.

Local authorities raised a total of 4.17 trillion yuan through bond issuance in 2018, down from the 4.36 trillion yuan in 2017, according to the ministry’s data.

Outstanding local government debt stood at 18.39 trillion yuan at the end of last year, well below the official ceiling of 21 trillion yuan.

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

“Indicators of China’s local government debts are generally within the reasonable range, and the risk is largely controllable,” Hao said.

The local debt ratio was 76.6 percent last year, significantly lower than the international warning line of 100-120 percent.

The total government debt ratio, taking the central government into account, came in at 37 percent, also far from the level of 60 percent set by the European Union.

China will rigorously control risks in local government bonds and implicit debts while financing infrastructure projects and fixing weak areas, Hao said.

At the end of 2018, central authorities approved a 2019 quota for new local government bond issuance of 1.39 trillion yuan, accounting for 63 percent of last year’s total new debt quota.

The move enables 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.

The bond issuance is expected to be completed by September and will be used to finance projects under construction and other major projects including transportation, water conservation and environmental protection.

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

A “black swan” refers to an unforeseen occurrence that 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.