China vows more fiscal support for firms, local govts to cope with downward pressure

Shanghai residents enjoy shopping spree ahead of Spring Festival Photo: Chen Xia/GT

China will scale up cuts in taxes and fees in 2022 on top of the newly added cuts worth 1.1 trillion yuan ($174 billion) last year and increase allocation of fiscal revenue to local governments to help offset their slowing revenues, officials from the Ministry of Finance (MOF) said on Tuesday, as the country firmly implements proactive fiscal policies for precision and sustainability in stabilizing economic growth.

Most provincial governments have estimated that their revenues this year will slow down from last year. In response, Finance Minister Liu Kun said at a press conference on Tuesday that it was "because we have made arrangements on tax and fee cuts."

"But we will step up payments to local governments this year to make up for a large portion of their reduction in revenues," Liu said, adding that the policy will lean on the underdeveloped regions.

In January, a total of 484.4 billion yuan of local government special-purpose bonds were issued, all of which were used in such areas as transportation and affordable housing projects, accounting for one-third of the amount that the MOF allocated from its 2022 quota, according to Liu.

Despite slowing revenue increase and more pressure on the expenditure end, tax and fee cuts will eventually help boost economic growth and lead to fiscal revenues increases in a later period, Vice Finance Minister Xu Hongcai said at the same briefing.

The MOF said that it will strengthen support for small and medium-sized enterprises (SMEs), individually run businesses and manufacturing by enhancing tax incentives and comprehensively using financing guarantees, loan interest discounts, incentives and subsidies to guide and leverage financial resources.

The number of small individual businesses in China, accounting for two-thirds of the country's total number of market entities, reached a record high in 2021, surpassing the 100 million mark and providing 276 million jobs, data from the State Administration for Market Regulation (SAMR) showed in January.

China deferred an estimated 200 billion yuan of taxes for micro-sized firms and SMEs in the manufacturing sector in 2021 to help them cope with difficulties and shore up the industrial economy.

"The policy of tax and fee cuts over the past few years have yielded fruitful results in further adjusting the national income structure," Tian Yun, former vice director of the Beijing Economic Operation Association, told the Global Times on Tuesday, adding that the next step might be progress in tax reform.

For industries hit especially hard by the pandemic like the services sector, more measures should come along with the tax and fee cuts from the fiscal side, including reducing individual businesses' rental costs and facilitating loans, Tian noted.

On the expenditure side, experts said that the fiscal surplus will be relatively sufficient this year, and the scale of expenditure is expected to expand further.

China's fiscal revenue rose by 10.7 percent from a year earlier to 20.25 trillion yuan in 2021, while expenditure increased 0.3 percent to 24.63 trillion yuan, data from the MOF showed.

Appropriate expenditure intensity should be maintained, focusing on supporting key areas such as scientific and technological research, ecological and environmental protection, people's basic livelihoods, modern agriculture and major projects covered in the national 14th Five-Year Plan, and the precision of expenditure should be improved, according to Liu.

Chinese officials said they will take a moderately proactive approach in the front-loading of infrastructure investment. Both central and local governments are expediting the rollout of major infrastructure projects as the country faces growing downward economic pressure.

In an article published in the People's Daily on Friday, Liu said China will expand government spending to cope with downward pressure, but the deficit ratio needs to be set at an appropriate level.

"While determining an appropriate deficit ratio, the scale of debt should be scientifically arranged and risks should be effectively prevented and defused," Liu stressed.

China's deficit ratio has maintained below 3 percent for many years, but in 2020, it exceeded 3 percent for the first time, reaching more than 3.6 percent due to the outbreak of the COVID-19.

"Local governments' debts have become more controllable compared with the past thanks to a slew of fiscal structural adjustments," Tian noted.

South China's Guangdong Province, one of the nation's most economically developed regions, declared in January that it would be the first to eliminate hidden local government debt, as the country ramps up efforts in the campaign to clean up risky liabilities.