The Chinese central bank plans to transfer a sizeable sum of its profits to China’s central government budget, in order to provide more funds to local authorities for use in their respective jurisdictions.
On 8 March the People’s Bank of China (PBOC) announced that it would transfer of 1 trillion yuan in profits to the Chinese central government, in accordance with the wishes of China’s 2022 Economic Work Conference as well as the 2022 Government Work Report.
The 2022 Government Work Report delivered by Premier Li Keqiang forecast an increase in China’s fiscal revenues this year, as well as called for “designated state-owned financial institutions and specialist organisations to lawfully submit the profits realised in recent years.”
PBOC said that the move is for the purpose of “strengthening usable financial capacity,” and that the funds will mainly be used to “offset tax reductions and increase transfer payments to local governments, supporting enterprise assistance and poverty alleviation, and stabilising employment and maintaining living standards.”
China Minsheng Bank analyst Wen Bin (温彬) said to state-owned media that PBOC’s profits are mainly derived from its open market operations – in the form of reverse repos and medium-term lending facilities (MLF), as well as returns from relending and foreign reserves.
According to Wen the transfer of PBOC’s profits to the central government has a legal basis within China, as well as ample precedent in other major economies.
Article 39 of the “People’s Republic of China People’s Bank of China Law” (中华人民共和国中国人民银行法) stipulates that “the net profits of the People’s Bank of China following the allocation of a set percentage to total reserves as approved by the State Council’s financial authorities are all submitted to the central government budget.”
“This exemplifies the coordination between fiscal policy and monetary policy in China, better employing the role of coordinated policy to stabilise macro-economic operation,” said Wen.