China’s Finance Ministry Calls for “More Active and Efficient” Fiscal Policy, Wants “Policy Dividends to Benefit More Market Actors”

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China’s Ministry of Finance has flagged the continued implementation of active fiscal policy measures in future, with an emphasis on a more equitable spread of the benefits to market participants and greater coordination with monetary policy as conducted by the People’s Bank of China (PBOC).

“The contradiction between fiscal revenue and expenditure is still prominent this year, but we will not regress in spending on people’s livelihood.” said Liu Kun (刘昆), head of the Ministry of Finance (MOF), at a press conference held on 3 March by the State Council Information Office. “Fiscal policy will continue to increase investment in the livelihood of the people.”

The Central Economic Work Conference at the end of 2022 called for “continuing to implement a proactive fiscal policy and a prudent monetary policy” and “proactive fiscal policy to increase in efficiency”.

Liu Kun said that the “proactive” aspect of fiscal policy would adjustments to policy across three areas in particular in 2023.

  1. Increase the intensity of fiscal expenditures. “On the basis of the national general public budget expenditure of 26.06 trillion yuan in 2022, this year we will coordinate the fiscal revenue, fiscal deficit, discount interest rate and other policy tools to moderately expand fiscal expenditures in scope.
  2. Increase the intensity of the use of special bonds as a driving force for investment. “Rationally arrange the scale of local government special bonds, appropriately expand the scope of investment and the scope of funds, and continue to form forces for driving investment.
  3. Increase the intensity of the downward transfer of fiscal resources. “Continue to increase the transfer payments from the central government to local governments, and give preference to challenged and underdeveloped regions, so as to firmly strengthen the bottom line of the ‘three guarantees’ at the grassroots level.”

With regard to “improving the efficiency of fiscal policy,” Liu said that points of emphasis would include improvements to tax and preferential fee policies, enhancing the “targeted accuracy” of policy, and striving to help companies still hampered by the Covid pandemic.

Liu called for greater optimisation of the structure of fiscal expenditures, making better use of the “leveraging” role of fiscal funds, and effectively driving the expansion of investment throughout Chinese society and promoting consumption.

MOF will also continue to strengthen coordination and cooperation with monetary policy, as well as, industrial, technological, and social policy, in order to “create policy synergies and promote the overall improvement of economic operation.”

In terms of specifics, Liu highlighted five key focal points for Chinese fiscal policy in 2023.

  1. Deeply implement the strategy of prioritising employment. Make effective use of the central government’s employment subsidy funds to support the reduction of burdens, stabilize employment and expand employment. Support and promote the employment of young people, especially college graduates, and help key demographics such as migrant workers, economically disadvantaged groups, and retired soldiers find employment and start businesses. Continue to support the development of vocational skills training to ease the contradictions of structural employment.
  2. Prioritize the development of education. Continue to improve the financial education investment mechanisms. Deeply promote the improvement of weak links in compulsory education and the improvement of capabilities, increase the supply of inclusive preschool education resources through multiple channels, and support the improvement of the basic conditions for the operation of ordinary high schools.
  3. Improve medical and health service capabilities. Support the new stage of epidemic prevention and control, and improve basic medical insurance financing mechanisms. Deepen public welfare-oriented reform of public hospitals, and promote overall planning of basic medical insurance at the provincial level.
  4. Improve the level of social security. In-depth implementation of the national pooling of basic pension insurance for enterprise employees. Actively promote the development of personal pensions. Improve fertility support measures and fiscal policy measures in response to the ageing of the population. Support inelastic demand for housing and housing improvement demand.
  5. Continue to improve the quality of the ecological environment. Accelerate the implementation of integrated protection and restoration projects for mountains, rivers, forests, farmland, lakes, grasslands and deserts, promote the green and low-carbon development and the transformation of key industries and fields.