Beijing: China today announced proactive fiscal policies aimed at stabilising growth in the world’s second largest economy as it grappled with industrial overcapacity, sluggish demand, struggling exports and a volatile stock market. The measures announced by the Ministry of Finance include multiple fiscal policies aimed at stabilising growth, such as coordinating funds to accelerate project construction, activating idle money and widening tax breaks.
It has also unveiled guidance funds for small and emerging businesses, and promoting public-private-partnerships (PPP). China is battling a property downturn, industrial overcapacity, sluggish demand and struggling exports, which dragged growth down to 7 per cent for the first half (H1) of the year.
On top of that, fresh pressures from capital market volatility, currency devaluation in emerging markets, and slumping global commodity prices are further muddying growth prospects. Worried by China’s slowing growth, global markets have been in turbulence for weeks. The panic also hammered mainland Chinese markets, with Shanghai’s stock exchange plummeting after a debt-fuelled bubble burst. Besides the slowdown of its economy, China experienced a devastating stock market crash in the last two months leading up to market losses amounting over USD 3.2 trillion.
To achieve China’s growth target of around seven per cent, the ministry said it would step up and improve a “proactive fiscal policy, fine-tune the measures in a timely manner and accelerate reforms that will help stabilise growth”. Fiscal surplus for the January-July period was 383 billion yuan (USD 60.22 billion) leaving plenty room for expansionary policies to increase the budget deficit to 2.3 per cent of GDP for 2015, up from last year’s target of 2.1 per cent, state-run Xinhua news agency reported. Within annual budget, China could record a fiscal deficit of 2.1 trillion yuan for the August-December period, 200 billion yuan more than the same period last year, according to a recent report by China International Capital Corp (CICC).
In addition, the government’s ongoing drive to activate unspent fiscal funds will make the expansionary fiscal policy more sustainable. According to the finance ministry, some 13.1 billion yuan of idle fiscal funds have been retrieved and will be redistributed to growth-stabilising sectors, and 243.8 billion yuan recovered to local budgets.
The more efficient use of idle fiscal funds is equivalent to increasing the government’s disposable funds beyond the budget without raising the government sector’s debt ratio, a CICC report said.