Government Revenue Up 9.8% in H1 2017 As Local Bond Issuance Drops by Almost Half

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The latest official data points to a sharp rise in China’s government revenues across the first half of 2017, in tandem with a near halving of debt issuance by local authorities.

Figures released by China’s Ministry of Finance last week indicate that for the period from January to June estimated standard public revenues for the whole of the country rose 9.8% year-on-year to reach 9.4306 trillion yuan.

Central government revenues saw a YoY increase of 9.6% to reach 4.3891 trillion yuan while local government revenues increase 10% YoY to hit 5.0415 trillion yuan.

The ministry also revealed that in the first half of 2017 total local government bond issuance was 1.86 trillion yuan, for a decline of 1.72 trillion yuan compared to last year’s issuance value ¬†of 3.58 trillion yuan for the same period.

MoF official Lou Hong said that positive factors are constantly increasing within current economic performance, setting a further foundation for improvement amidst stability for the economy in future, as well as providing vigorous support to growth in fiscal revenues.

The producer price index rose 6.6% across the first half of the year, with bulk commodities in particular seeing strong gains, fuelling growth in fiscal revenues.

Lou Hong further notes that growth in both import and export volumes spurred growth in related tax and customs revenues. The total standard trade import volume rose 30.2% in the first half, leading to YoY increase of 31.8% in import taxes, which in turn accounted for a 2.6 percentage point increase in revenues.

Factors behind drop in local government debt

Lou said that the sharp decline in local government debt issuance was due to large-scale bond issuance over the past two years, with 3.2 trillion yuan and 4.9 trillion yuan raised in 2015 and 2016 respectively.

Measures introduced by the Ministry of Commerce and its local branches to adjust local government debt also had an impact on bond issuance.

“Towards the end of June, in order to strengthen co-ordination of fiscal policy and monetary policy and actively respond to potential liquidity market tightness and higher issuance rates in the run up to the end of the season, some local governments actively reduced the scope of local government bond issuance under the guidance of the Ministry of Commerce,” said Lou.

Local government debt issuance could continue to be stymied by regulatory scrutiny, with the recent 5th National Financial Work Meeting, held from 14 – 15 July, emphasising the need to strictly control the increase of government debt levels.

Speaking to National Business Daily, Qiao Baoyun from the Central University of Finance and Economics said that this marks the first time that China’s central government has made reference to the implementing a full-life accountability and inspection system with respect to local government debt.

This means that in future even if officials retire they could still bear corresponding liability for government debt, instead of shifting responsibility towards successive officials.

MoF sees fiscal revenue growth easing in H2 2017

Lou Hong said that a number of factors could constrain growth in public revenue during the second half of 2017.

These include further rollout of policies for the reduction of taxes and government fees, as well as potential declines in PPI, and the tepid performance of key indices such as corporate profits and standard trade imports as price growth declines.

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