Supporting economic growth, active fiscal policy is expected to be strengthened

Since the beginning of this year, the proactive fiscal policy has been moderately strengthened and improved to provide strong support for the continuous recovery and improvement of the economy. Experts predict that in order to strive to achieve the annual economic and social development goals, on the basis of implementing the previously introduced measures, the proactive fiscal policy is expected to be further intensified.

Increasing Countercyclical Adjustment Efforts

This year, the Ministry of Finance has strengthened and improved fiscal macro-control, using a combination of various policy tools such as deficits, special bonds, fiscal subsidies, interest subsidies, and tax policies. For example, the central government has arranged for a 1 trillion yuan ultra-long-term special national bond to support the implementation of major national strategies, the construction of security capabilities in key areas, and to support a new round of large-scale equipment upgrades and trade-ins for consumer goods.

According to data from the Ministry of Finance, in the first 8 months of this year, the national general public budget expenditure was about 17.4 trillion yuan, an increase of 1.5% year-on-year, lower than the expected annual growth rate. Experts believe that against the backdrop of increasing downward pressure on the economy, market expectations for incremental fiscal policies have increased. It is suggested to increase the intensity of countercyclical adjustments in the future, expand the scale of fiscal expenditures, stimulate total demand, and promote the economy to operate within a reasonable range.

"Proactive fiscal policies should play a greater role in stabilizing growth." Luo Zhiheng, Chief Economist of Yuekai Securities, stated that additional deficits and issuance of government bonds should be studied to make up for the revenue gap caused by the downturn in land transfer income, and to increase the growth rate of fiscal expenditures.

Some experts also suggest that under the current situation, the issuance quota of ultra-long-term special national bonds for this year could be increased to further enhance the role of government investment. Ultra-long-term special national bonds are not included in the fiscal deficit, and the policy observation window mainly focuses on October to November.

Zhang Jun, Chief Economist of China Galaxy Securities, believes that incremental fiscal policies can consider restarting PSL (supplementary mortgage loans) through interest rate cuts to support the real estate and infrastructure sectors; or advance issuance of ultra-long-term special national bonds to further enhance policies related to "two new" and "two heavy", from the current policy perspective, it can be used to continue supporting consumption and to support the construction of centrally-led major infrastructure projects.

Enhancing the Effectiveness of Fiscal Policies

Against the backdrop of stabilizing the economy, with the allocation of the second batch of additional bond quotas, local governments have accelerated the issuance of bonds. According to data from the Special Bonds Information Network, as of September 26th, local bonds totaling 61 trillion yuan have been issued this year. Among them, 31 trillion yuan were issued as additional special bonds. Shanxi, Ningbo, Inner Mongolia, and Dalian have completed the issuance of additional special bonds for the year.

"Based on the issuance plans announced by various regions, the scale of new local bond issuances in September is 738.1 billion yuan, plus a planned repayment scale of 178.7 billion yuan, it is estimated that the scale of local bond issuances in September will be around 900 billion yuan. Based on this calculation, the scale of new local bond issuances in October may be around 700 billion yuan." Wen Bin, Chief Economist of China Minsheng Bank, predicts that the remaining quota for new local bonds may be basically issued by the end of October and fully utilized by the end of the year.

Increasing the issuance and utilization progress of local bonds is a policy focus. In the recently released "Report on the Implementation of the Budget Since the Beginning of the Year by the State Council," when deploying the next six key fiscal works, "enhancing the effectiveness of fiscal policies" is placed in the first place In Luo Zhiheng's view, in the next stage, the progress of special bond issuance should be accelerated, the scope of special bonds should be expanded, and consideration should be given to adjusting some of the special bond quotas to general bonds.

"It is possible to reasonably broaden the scope of general bond fund usage, such as tilting more public welfare projects with strong public benefits but low returns, such as urban and rural construction, ecological environment protection, towards general bonds. Allow general bonds to be invested in projects in the above-mentioned areas with certain returns, and repay the debt in a way that combines project returns with general public budget revenue, thereby reducing the investment pressure of special bonds, and improving the overall efficiency of local debt funds." Yuan Haixia, Executive Director of CCXI Research Institute, suggested.

Preventing and Resolving Local Debt Risks

Preventing and resolving local debt risks remains one of the key financial tasks. Several recent documents, such as the "Report on the Government Debt Management Situation in 2023" issued by the State Council, the "Supervisory Research Report on the Government Debt Management Situation in 2023", and the "Report on the Budget Implementation Situation Since This Year" have clearly stated the need to coordinate the resolution of local government debt risks with stable development and establish a government debt management mechanism that is compatible with high-quality development.

The "Report on the Government Debt Management Situation in 2023" issued by the State Council proposes strengthening and improving the management of local government bonds, and enhancing comprehensive supervision of the entire process of local government debt. For example, further expanding the scope of special bond investment areas and the range of project capital used as capital, and appropriately increasing the scale and proportion of capital used for project capital.

The "Report on the Budget Implementation Situation Since This Year" proposes preventing and resolving local government debt risks. For example, coordinating the resolution of risks and stable development, further implementing a comprehensive debt reduction plan, with provinces taking overall responsibility and cities and counties making every effort to reduce debt, gradually reducing the level of debt risk.

In recent months, the issuance of special bonds has accelerated, delivering more incremental funds to local governments, while a considerable proportion of the funds will be used for existing projects and debt resolution. In August alone, Fujian, Shanxi, Chongqing, Jilin, and other 9 regions issued approximately 209.7 billion yuan of "special" new special bonds, accounting for over 40% of the total issuance of new special bonds that month.

Luo Zhiheng suggests that in the future, the "debt reduction" policy should be optimized to help local governments return to normal from an emergency state. For example, for some local governments facing significant debt pressure, measures such as central issuance of national bonds for local transfer, policy financial institutions providing loans to local governments, and continued issuance of special refinancing bonds can be considered to ease local pressure, avoid liquidity risks, ensure the "three guarantees" expenditure, and exchange time for space.

Author: Li Yuan, Source: Shanghai Securities News, Original Title: "Supporting Economic Stability and Growth, Positive Fiscal Policy Expected to Strengthen"