More funds to local governments on way

The nation's city and county-level governments will share 2 trillion yuan ($282.4 million) in funds delivered by central authorities for spending and business rescue packages thanks to a special bailout measure aimed at easing economic shocks from the novel coronavirus pandemic, senior officials and analysts said on Friday.

Half of the funds will be raised through the country's special central government bonds for COVID-19 control, and the other 1 trillion yuan will derive from deficit spending activities, Vice-Minister of Finance Xu Hongcai said on Friday, without providing any time frames for the special bond issuance.

To ensure that primary-level governments are able to access the funds, a special transfer payment mechanism will be established to ensure that deserving recipients benefit, Xu said.

China has set up a transfer payment mechanism to channel funds from the central government to provincial local governments or to shift funds between regional authorities in order to balance revenues (mostly from tax incomes) and fiscal obligations in different areas.

The new transfer payment mechanism is noteworthy because provincial-level governments only serve to pass these funds on to lower-level governments, and a supervisory system will be established to prevent embezzlement, said Li Jinghui, director of the Budget Department at the Ministry of Finance.

"The central government's transfers will continue to play an important role in bridging the general budget deficit of local governments," said Fu Yubin, an analyst at Moody's Investors Service.

In 2019, higher central transfers to local governments, thanks to larger dividend collections from State-owned enterprises, significantly contributed to local government revenue growth and offset some of the effects of tax and fee reductions, Fu said.

Slower economic growth due to COVID-19 may even contract growth in the government's general budgetary revenue in 2020, according to analysts, especially since policymakers plan to cut taxes and fees by 2.5 trillion yuan annually.

The Government Work Report for 2020 indicated an intention to establish "a special transfer payment mechanism", to ensure that 2 trillion yuan in funds go straight to prefecture and county-level governments and directly benefit businesses and people.

"These funds should be primarily used to ensure employment, meet basic living needs and protect market entities.

They also provide support amid tax and fee cuts, reduced rents and loan interest rates, and also help increase consumption and investment," the report said.

Some of the funds raised by the special treasuries will be used for infrastructure construction related to COVID-19 control, and also include supporting the development of small and micro enterprises and providing fiscal and rent subsidies, said the vice-finance minister

"Primary-level governments can reserve a part of the funds for urgent and self-determined use," Xu added.