Proactive fiscal policy key to spur demand

Treasury bond issuance to shore up biz sentiment, help ease local govts' burden

China will pursue a proactive fiscal policy, and speed up the issuance and use of government bonds, the country's finance minister said.

Experts said this will enable the nation to boost domestic demand and encourage ongoing improvements in economic performance in the fourth quarter. The country's recent moves to accelerate government spending will shore up business sentiment and help the economy off to a good start next year, they said, calling for stronger efforts to prevent and defuse local government debt risks at the same time.

"China will speed up the issuance and use of additional treasury bonds and effectively harness the newly added local government special bonds, to maintain fiscal spending intensity at an appropriate level," Finance Minister Lan Fo'an told Xinhua News Agency in an interview published on Sunday.

The newly approved 1-trillion-yuan ($137.3 billion) treasury bonds will be utilized for reconstructing areas hit hard by natural disasters and bridging the gap in disaster prevention and relief capacity, Lan said.

The funds will be allocated to projects identified without delay. Meanwhile, local administrations will be urged to align the treasury bonds with their existing funds to meet project construction needs and make economic gains as quickly as possible, Lan added.

Issuance of the treasury bonds, according to the ministry, is slated for the final quarter.

While 500 billion yuan will be deployed by the end of this year, the balance will be issued next year.

Weighed down by a slowdown in economic growth and a slump in the property sector, fiscal revenue grew at a slower pace, resulting in less-than-anticipated fiscal expenditure during the first three quarters of the year, said Feng Jianlin, chief economist at Beijing FOST Economic Consulting Co.

Due to the issuance of an additional 500 billion yuan in treasury bonds in the last quarter, the general public budget expenditures of local governments for this year would climb from 23.67 trillion yuan to 24.17 trillion yuan, raising their growth rate from 5.2 percent to 7.4 percent, Feng said, adding that this would further bolster domestic demand and underpin economic recovery.

Following a preliminary screening, more than 7,000 projects have qualified for funds since September, which would need some 1 trillion yuan, according to the National Development and Reform Commission, the country's top economic regulator.

Additionally, as the remaining funds are planned to be deployed next year, the effect of pro-growth policies will help maintain the scale of infrastructure investment at the beginning of 2024 and create more favorable conditions for sustained economic recovery, said Wang Qing, an analyst at Golden Credit Rating.

Noting that the funds will be entirely directed to local administrations through the transfer payment mechanism, Wang said this will help optimize the country's debt structure and ease the fiscal strain on local governments.

The Finance Ministry will steadily promote the resolution of local government debt risks by leveraging a package of policy measures, Lan said.

In addition, the ministry will allow local governments to front-load part of their special-purpose bond quota for 2024, to ensure that relevant policies for this year and the next will be aligned in a coordinated way and that local areas' financing needs can be better met, Lan said.

Over recent years, the central government has regularly front-loaded special-purpose bonds, which help local governments enhance their preparedness in terms of project reserves and fund usage and quickly generate economic activities at the beginning of the following year, said Luo Zhiheng, chief economist at Yuekai Securities.

Amid growing complexities and uncertainties at home and abroad, the pressure of sustaining growth will be greater in the upcoming year. So, the effectiveness of fiscal policy should be better tapped to anchor market expectations and boost the economy, Luo added.

Dedicated efforts will be made to improve fund management and efficacy, and guard against risks. Sound supervision and management throughout all links should be in place. Performance-based management should be strengthened to prevent funds from remaining idle, Lan added.