China: Modest Fiscal Stimulus Plans

Published on April 27, 2020

China’s Politburo has approved a series of high-level fiscal stimulus guidelines that will be formally announced by Premier Li Keqiang and submitted for review at the Third Session of the 13th National People’s Congress (NPC).

The dates for the Third Session of the 13th NPC have yet to be set, but they will be announced at the conclusion of the 17th session of the Standing Committee of the NPC (NPCSC) that convened on April 26, and is slated to run through April 29.

The broad outlines of the fiscal stimulus package that was approved by the Politburo, subject to revision between now and final approval, are:

** A net increase of 1.43 trillion yuan in the government deficit over last year, which would boost the official deficit to GDP ratio from 2.8% last year to 3.5% in 2020.

** A net increase of 2.4 trillion yuan in central government tax rebates and transfer payments to local governments that will include a special transfer of 410 billion yuan to the COVID-19 stricken Hubei province.

** A net increase of 1.2 trillion yuan in tax and fee reductions, from 2.3 trillion yuan in 2019 to 3.5 trillion yuan in 2020. These numbers do not include additional spending on social insurance and basic medical insurance premiums.

** In addition, the State Council has issued in advance a total ceiling of 1.57 trillion yuan for new local government debt for 2020, in accordance with the authorization decisions of the previous, 16th, Session of the 13th NPCSC.

Leaving Headroom for Further Stimulus

While the COVID-19 outbreak has had an unprecedented impact on China’s economic and social development, State Council sources acknowledge that Beijing’s stimulus package is quite moderate in comparison to the G7 member countries.

The reason for that is two-fold: to maintain headroom should further stimulus be needed, and to balance the need to stimulate growth with a rapidly deteriorating budgetary situation.

In the words of a senior official in Beijing, “Taking all factors into account, fiscal revenue faces an extremely grim situation in 2020, and there will be great pressure to keep the budget balanced. It is imperative that we firmly maintain worst-case scenario thinking… balance the needs for stabilizing growth and guarding against risks… and maintain fiscal sustainability, while increasing tax and fee cuts and ensuring funding for key areas.”

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