MNI INTERVIEW: Fiscal Boost To Drive China GDP Target-Advisor

China is counting on more proactive fiscal policy to drive investment this year, but consumption will also need to recover to close to pre-pandemic levels as officials push to meet the 2022 economic growth target of around 5.5%, the former head of the country’s top planning body told MNI on the sidelines of the National People’s Congress this week.

“There is a significant increase in available fiscal funds this year,” said Han Yongwen, a deputy to the Congress and a former secretary general of the National Development and Reform Commission. Fiscal spending is expected up by more than CNY2 trillion from last year to a total CNY26.7 trillion, he noted, speaking after the government’s Work Report released during the Congress set targets for GDP, the fiscal deficit, inflation and other indicators.

While the Work Report also mentioned additional monetary policy stimulus, Han said that the boost to fiscal spending, mainly drawn from accumulated multi-year profits handed over by specific state-owned financial institutions and state monopolies and last year’s good tax collections, would drive growth even as borrowing is kept at prudent levels at both national and local levels. The national government’s budget deficit will fall to around 2.8% of GDP from the previous 3.2%, he said.

The growth target of around 5.5%, the lowest ever but still higher than expected, will require support from a solid performance by exports, and for investment and consumption to recover close to pre-pandemic levels, said Han, also a former governor of Hunan Province.

“Fixed-asset investment is still 2-to-3 percentage points away from normal,” he said, “it should ideally rebound to about 6% [growth] from 2021’s 4.9%.”

INVESTMENT PUSH

The central government’s investment budget rose by CNY30 billion to CNY640 billion, while the unchanged quota for CNY3.65 trillion of infrastructure-backed local government special bonds will be supplemented by over CNY1 trillion of unused special bond funds carried over from last year.

“There are enough projects to keep up with the accelerated issuance of special bonds, at least for the first half of the year,” said Han, adding that there is still time for local governments to find enough projects for the second half.

The central government will also boost transfer payments to local governments by CNY1.5 trillion to CNY9.8 trillion, the largest increase in years. This should help local authorities ease fiscal pressures and promote investment in urban pipelines and other infrastructure, according to Han.

An easier credit environment throughout the year should help to fill up the gap of supporting funds, said Han, who believes the People’s Bank of China has room for an easing bias even as the Federal Reserve starts expected rate hikes in March, given the relatively wide U.S.-Sino interest spread.

Also, CNY2.5 trillion in tax cuts and rebates, doubles last year’s over-CNY1 trillion of cuts, will ease the growing cost burden for smaller companies, improve their cash flow, and help them obtain loans, said Han.

BOOSTING DEMAND

Though no major consumption stimulus is laid out, Han thinks consumer spending will improve judging from spending during the Spring Festival in February, as people increasingly adapt to pandemic prevention measures.

China is unlikely to give up its zero-Covid policy but will keep refining it to “accurately handle sporadic outbreaks and maintain normal production and living order,” Han said.

“China must stick to our own path, taking responsibility for the lives of such a large population, as its anti-pandemic experiences have proven to be successful and effective for economic stability,” said Han, in response to some anticipation about China would relax its strict zero-Covid policy.