Fiscal measures set to stabilize economic growth

Chinese policymakers vowed to adopt more efficient fiscal measures to stabilize economic growth in 2022, while still reining in government debt amid regulations on financing and the property sector, experts said on Monday.

Stronger and more targeted fiscal actions are expected after the top leadership held the annual Central Economic Work Conference last week, including additional tax and fee cuts, and faster fiscal expenditure to boost infrastructure construction, they said.

Further easing of macro policy will cushion the economic slowdown in China in 2022, according to Andrew Fennell, senior director of Fitch Ratings (Hong Kong). He said he expected that fiscal policy will be supportive and the macro leverage ratio will rise modestly next year.

After strong revenue growth and lower-than-expected expenditures contributed to "an undershooting" of this year's budget deficit target, Fitch's projection of the general government deficit is at 6 percent of GDP in 2022, well above the pre-pandemic levels, he added.

The official annual fiscal budget plan will not be published until the annual session of the National People's Congress, which is expected to be held in March, according to analysts.

Meanwhile, "widespread property-sector and financial-contagion risks should be averted," said Fennell, as strategic adjustments to macro-financial regulations stabilize market confidence and refinancing conditions and translate into improved homebuyer sentiment.

Wang Tao, chief China economist at UBS, wrote in a research note that the official budget deficit ratio is likely to remain at 3.1 to 3.2 percent next year, and the new quota of local government special bonds might remain stable at 3.6 trillion to 3.7 trillion yuan ($565.8 billion to $581.5 billion) in 2022, compared with 3.65 trillion yuan this year.

According to a statement after the conference, policymakers emphasized growth stability as the priority of 2022's economic work, adding that economic growth faces threefold pressure from shrinking demand, supply shocks and weakening expectations.

The conference also decided that infrastructure investment must advance moderately, the statement said.

A spokesperson from the Ministry of Finance confirmed earlier that the ministry was considering allocating the local government special bond quota in advance, but did not disclose the specific amount.

Policymakers may approve a new quota of special bonds in advance in the first half of next year, as well as accelerate the use of funds, said Wang with UBS, who added that the growth rate of infrastructure investment is expected to rebound slightly to about 4 percent, up from about 1 percent this year.

Lu Ting, chief China economist at Nomura, said that "there will be no 180-degree shift in existing property curbs for now", noting that policymakers maintained a "hawkish stance" of resolutely preventing new additions to local governments' implicit debt.

The conference required that ministries and local governments "share their duties on growth stability, roll out pro-growth policies" and implement supportive measures ahead of schedule, but ministerial and local government officials might still face conflicting restrictions and score cards, especially on tasks such as containing the pandemic, said Lu.