context: The promised 'mild and targeted' stimulus may turn into yet another full-fledged expansion as the economy remains stagnant. Previous fiscal incentives struggled to boost investment data, whereas the state has a weaker influence over consumption and exports. More 'countercyclical' policies undoubtedly exacerbate structural and debt problems.
A State Council executive meeting on 4 Sep 2019 intensified implementation of its 'six stabilisation' policies by advancing part of the new special-purpose bond quota for the next year. The meeting decided that raised funds can be used in critical infrastructure, emphasising project management and prevention of misappropriation.
Ministry of Finance (MoF) held a press conference on 6 Sep 2019 with Xu Hongcai 许宏才 vice minister and Wang Kebing 王克冰 budget bureau inspector, explaining
- this move is justified by National People's Congress’ end 2018 authorisation that State Council could advance the next year’s new special-purpose bond quota up to 60 percent of the current year’s quota, effective from 1 Jan 2019–31 Dec 2022
- MoF strongly emphasises projects’ actual embarkation
- coordination between fiscal, development and reform, and financial authorities will strengthen
- the central government will not be responsible for local debts
- projects qualified for using bond-raised funds as investment principal are expanding from four areas (railway, highway, electricity and gas supply) to 10 (adding airports, waterway hubs and ports, parking lots, water conservation, polluted water and garbage treatment, and water supply)
- the policy prioritises regions with thoroughly-prepared projects and that are well-equipped for winter 2019 and spring 2020 construction
Securities Daily reports that, as of beginning September, a total of C¥3.98 tn in local debt was released, with C¥2.01 tn new special-purpose bonds out of C¥2.90 total new bonds.
Within the 20 percent limit of advanced funds being used as initial capital, this could have a multiplier effect of C¥1 tn to reach C¥2 tn in investment, calculates Mao Jie 毛捷 University of International Business and Economics professor. Fu Yifu 付一夫 Suning Institute of Finance senior researcher says infrastructure investment falls behind manufacturing, and the average infrastructure share still lags behind developed countries’, especially in rural infrastructure. Fu notes public facilities in education, healthcare and culture sectors need improvement as well.
Tao Chuan 陶川 Fangzheng Securities chief analyst says H2 2019’s fiscal contractionary effect grew prominent as localities have nearly run out of their new bond quota for the year. Assuming this policy’s effect will be felt beginning 2020, fiscal easing will support infrastructure investment in H1 2020, adds Tao.