MNI POLICY: China Ups Record Debt Quotas as Q1 Revenue Drops

     BEIJING (MNI) - China will issue a further CNY1 trillion local government

special-purpose bonds (LGSB) by the end of May, boosting the 2020 front-loaded

quota for LGSBs to a record CNY2.29 trillion, while also raise deficits and

boost transfer payments after fiscal revenue in the first three months plunged.

     Fiscal revenue fell 14.7% y/y in Jan-March, compared with growth of 6.2%

y/y in the same period last year, according to data released by the Ministry of

Finance on Monday. 

     Revenue from taxes fell 16.4%, accounting for 10 percentage points of the

total reduction. Sectors hit by the coronavirus pandemic registered the sharp

drops taxes remitted, with a 33.2% reduction reported by food catering, 27% by

transport and 19.6% by entertainment.

     Total tax revenues received by fiscal authorities fell by 26.1% in March

compared with a 21.4% decline in February and 3.9% drop in January.

     Here are other key points from information presented at the MOF briefing:

     - By April 15, CNY1.57 trillion front-loaded debt quotas for local

governments had been issued, including CNY1.16 trillion LGSB and CNY462.4

billion general bonds. The average maturity of local government bonds issued was

15.8 years, with 86% 10 years or over.

     - The coupon on local government bonds issued has fallen through each month

this year, averaging 3.14% in the first two weeks of April, 33 bps lower than

that in 2019. Funds raised by LGSB has been all used to support big

infrastructure projects.

     - MoF will continue with tax and fee cut policies and consider new

measures, including tax schemes to boost car sale and exports, along with

adjusting companies' social security payments to help them weather the slowdown.

     - Fiscal expenditure in Q1 contracted by 5.7%, compared with a growth of

15% in same period last year. The central government's expenditure grew by 3.7%

while that of the regional authorities decreased 7%.

     - By April 19, the fiscal system distributed total CNY145.7 billion to

support factory restarts, small businesses and stabilising employment, while

giving CNY156 billion to guarantee the basic needs of people hit hard by the

pandemic.

     - In Q4 2019, the central government prearranged around CNY6.1 trillion

transfer payments to regions to bridge a spending gap. About CNY110 billion has

been given this year. The central government will strengthen funding support for

infrastructure and production resumption, while requiring local governments to

further cut general expenditure. The pressure on fiscal revenue will last to the

second quarter, the ministry said.

--MNI Beijing Bureau; +86 (10) 8532 5998; email: marissa.wang@marketnews.com

--MNI Beijing Bureau; +86 10 8532 5998; email: william.bi@mni-news.com

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

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