Deficit growth to cushion slowdown

The Chinese government will face an unprecedented rise in the budget deficit this year to implement expansionary fiscal measures and lessen the near-term economic slowdown while still preventing elevated debt, analysts said on Tuesday.

To contain the novel coronavirus and stabilize economic growth, the general public expenditures of China's central and local governments are expected to be 24.79 trillion yuan ($3.5 trillion) this year, up by 3.8 percent from 2019, according to the Ministry of Finance.

A financing gap between government income and expenditures was projected to be a record high of 6.76 trillion yuan in 2020, and 3.76 trillion yuan will be supplemented by the annual budget deficit, the ministry said.

The intensified, proactive fiscal policy is reflected by the unprecedentedly large expenditure scale, which takes into consideration the economic uncertainties in the second half of this year, Finance Minister Liu Kun said on Monday.

"As we expected, in the coming months, fiscal income is likely to rebound along with the reopening of businesses, but still with large uncertainties," Liu said. "The general public budget income may continue to drop on a yearly basis in the second quarter, while bouncing back to growth in the second half to offset some losses in the first half."

Bai Yanfeng, a professor at the Central University of Finance and Economics in Beijing, said that the issuance in special treasuries for COVID-19 control and in local government special bonds will contribute to an expenditure growth of nearly 40 percent in the budgets of central and local government-managed funds.

"The increase in expenditures is remarkable, indicating fiscal authorities are deploying more powerful tools to offset COVID-19 shocks," Bai said.

Output 'bottomed out'

Many countries are using expansionary fiscal stimulus policies to shore up their economies and resume production. Key fiscal policy measures in China have included emergency health spending, tax breaks, direct transfers to vulnerable households, deferrals and special local government bond issuance to boost investment.

A report by the World Bank published on Tuesday said that China's fiscal response totaled 5.4 percent of GDP.

Following an economic contraction in the first quarter, "China's output has bottomed out", according to the World Bank report. "But the outlook remains uncertain amid contracting global activity."

It predicted that the nation's total debt is estimated to have increased by about 17 percentage points in the first three months, reflecting fiscal and monetary policy support amid economic contraction.

Funds from overall government bonds will reach 8.51 trillion yuan, up by 3.6 trillion yuan from last year. "Such a large increase in government bonds was a first for us, and it is also a special arrangement for the current situation," said Liu, the finance minister.

The Ministry of Finance is working on delivering the quota of newly issued general and special local government bonds, as well as for the special treasuries for COVID-19 control, according to Liu.

Zhao Quanhou, a researcher at the Ministry of Finance's Chinese Academy of Fiscal Sciences, said they are to further control and prevent potential debt risks of local governments, despite the strong fiscal stimulus designed to contain the effects of the pandemic.