China vows to cut unnecessary spending when coronavirus stretches finance

Source:Global Times Published: 2020/2/16 15:09:54

Medical staff receive a patient infected with the novel coronavirus at the temporary hospital converted from Wuhan Sports Center in Wuhan, central China's Hubei Province, Feb. 12, 2020. (Xinhua/Xiao Yijiu)

The Chinese government vows to cut unnecessary spending when the COVID19 outbreak inhibits fiscal income while increase expenditure, Chinese Finance Minister Liu Kun wrote in an article published by Qiushi, a magazine affiliated with the Communist Party of China Central Committee.

"China's fiscal operation will maintain a state of 'tight balance' for some time to come. In this situation, it won't be feasible to adopt a loose fiscal policy by expanding fiscal expenditure scale. Instead, policies and capital must be used in a more effective, precise and targeted way," Liu wrote.

According to Liu, China's central government will set an example by largely cutting spending on non-essential projects and strictly curbing expenditures on new projects.

Local governments will also be asked to reduce their regular expenditures and withdraw funds from projects that progress slowly or are hard to implement. They are also required to determine expenditure scales based on income, instead of spending money in a haphazard way.

The Chinese government is looking to tighten its belt at a time when the country's economy, already facing a downward cycle, is hit by the outbreak of the coronavirus that has killed 1,665 people by Saturday. The disease will also be a headwind for the country's growth as manufacturing is delayed and consumption is crippled.

"China wants to make sure that local governments are not saddled with rising debts by randomly splashing out at this critical period," said Cong Yi, a professor at the Tianjin University of Finance and Economics. 

According to Cong, local governments in China must learn to make their spending more "effective" by carefully assessing whether the projects they invest in can pay back. They should alaccelerate structural reforms to marketize public services.

"I think the coronavirus outbreak is creating an opportunity that pushes local reforms in those directions," he said.

Despite financial pressure, China will still insist in the policy of tax cuts to help reduce business costs. According to Liu, the government will make sure that taxes on major industries like manufacturing will reduce evidently this year, while taxes on industries like architecture and transportation will reduce to some extent.

China will also scrap value added taxes on income generated from the delivery of coronavirus disease prevention materials, Liu said.

Cong also noted that the government still has to spend on "key industries" to spur economic growth. Those industries include manufacturing industries that relate to future technological reforms like 5G, and areas related to people's livelihood.

Global Times

Posted in: ECONOMY

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