China to introduce incremental fiscal policy measures

China's Ministry of Finance is poised to introduce a comprehensive package of targeted new policy measures soon, focused on stabilizing growth, expanding domestic demand and mitigating risks.

The measures will focus on improving the financial situations of local governments, facilitating the stabilization of a bottomed out property market, and enhancing the risk resilience and credit allocation capabilities of major banks, amongst others.

China has vowed to ramp up support for local governments to help them resolve debt risks, including substantially increasing debt quotas and assisting with the mitigation of hidden debt, said Finance Minister Lan Fo'an at a news conference on Saturday.

"This policy push is aimed at providing local governments with the necessary financial resources and policy space to focus on driving development and safeguarding people's livelihoods," Lan said.

Particularly, policymakers are preparing to significantly increase the debt swap quota, allowing for the one-time replacement of a large amount of hidden local government debt, Lan said.

The new policy measures, which will be implemented after the completion of necessary legal procedures, comes in addition to the continued allocation of a certain scale of bonds within the annual special-purpose bonds, to support the resolution of existing government investment project debt, Lan said.

"This is the most substantial debt resolution support policy introduced in recent years, and it will undoubtedly provide a much-needed boost to local governments' debt mitigation efforts," Lan said.

By the end of last year, the balance of hidden debts registered on the government's debt information platform had decreased by 50 percent compared to the 2018 baseline, indicating that debt risks are now under control, Lan said.

China is also exploring other policy tools, including the potential for the central government to take on more debt and increase its fiscal deficit, Lan said.

Policymakers will also integrate the application of local government special-purpose bonds, dedicated funds, and tax policies as instruments to bolster and facilitate the stabilization and upturn of the real estate market, he said.

"Considering that there is a relatively large amount of idle and undeveloped lands, (we are thinking about) supporting local governments in reclaiming idle lands that meet certain criteria's using special-purpose bonds, and in areas with necessary needs, these bonds can also be used for new land reserve projects," said Liao Min, vice-minister of finance, at the news conference.

Such policy measures can help adjust the supply-demand dynamics in the land market, reduce idle lands, and enhance the government's management over land supply, he said, adding that they will also help alleviate the liquidity and debt pressures faced by local governments and real estate companies.

Given the substantial number of finished homes that are unsold, the ministry is planning to allow special-purpose bonds to be used on buying existing commercial properties for conversion into affordable housing, while continuing to effectively utilize subsidies from the government-subsidized housing project, said Liao.

Traditionally, funds from the comfortable housing project have been used primarily to support the creation of affordable housing through new construction. The ministry now considers optimizing the approach by appropriately reducing the scale of new construction and sourcing affordable housing from existing housing to ease housing stock pressures.

Liao also said the ministry is studying the enhancement of value-added tax and land value-added tax policies that are aligned with the cancellation of the standards for ordinary and non-ordinary residential housing. The ministry will strengthen tax policy support to promote the stable and healthy development of the real estate market, he added.

The country is also expected to issue special treasury bonds to support State-owned large commercial banks in replenishing their Tier-1 core capital, enhancing their ability to withstand risks and increasing credit extension, thereby better serving the real economy.

liuzhihua@chinadaily.com.cn