MNI POLICY: China To Address Local Govt Income Dip: MOF Offc'l

     BEIJING (MNI) - China's fiscal authorities will take action to deal with

the diminishing income levels of local governments and prevent the misuse of

revenue from increased special bond issuance, the Ministry of Finance told

reporters Friday.

     Total revenue contracted by 10.8% y/y in H1, compared with a 3.4% increase

in the same period of 2019, said Liu Jinyun, a senior official of the Ministry,

with falling tax revenues, down 11.3%, a result of the Covid-19 outbreak and tax

relief measures enacted, which dragged down the revenue growth by 10 percentage

points.

     Revenue from value-added tax, China's main revenue source, fell by 19.1%

y/y in the first six months from 5.9% growth in the corresponding period of

2019. Meanwhile, the local government income fell 7.9% in H1, compared with a

growth of 3.3% in 2019.

     As production ramps up and the economy continues to improve, revenues will

recover Liu said, noting June saw a 3.2% increase.

     Central government will make transfer payments to help plug any gaps, said

Wang Kebing, ministry official at budget department. Transfer payments would

jump to CNY8.4 trillion in 2020, CNY950 billion more than last year and the

biggest amount in recent years, he added.

     China will issue up to CNY3.55 trillion of local government special-purpose

bonds by July 14, compared with the total CNY3.75 trillion quota for the whole

year, said Wang, noting the average maturity of the bonds is 15.6 years with a

coupon of 3.36% in average. Funds raised have mostly have been for large

infrastructure and public projects, he said.

     Since April, the nominal coupon on the issued bonds has risen by around 50

basis points to date, he noted.

     Authorities are closely watching the risks involved in the use of the

special bond funds, emphasizing transparency and proper returns from relative

projects to repay both debt and interest, Wang said, stressing it is strictly

forbidden to repay and swap old debt with the newly raised funds.

     The ministry will continue measures in deferring and cutting tax and fees,

which will reduce the burden of companies by about CNY2.5 trillion, Chen

Donghao, official at tax policy department of the Ministry.

--MNI London Bureau; tel: +44 203-586-2225; email: les.commons@marketnews.com

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