Flow of funds to grassroots enhanced

The State Council has pledged to make the use of fiscal funds more efficient, with steps to explore the establishment of a regular special transfer payment mechanism to directly funnel funds to primary-level government to bolster support for businesses and individuals struggling to cope with the impact of the COVID-19 pandemic.

The Cabinet said after its executive meeting on Oct 21 that the government will maintain the consistency and efficacy of macroeconomic policies and continue to implement a temporary special transfer payment mechanism.

The areas covered by directly funneled funds will be expanded to include more special transfer payments from central finances to provide livelihood assistance, guarantee the basic fiscal capacity of county-level governments and extend more support to grassroots authorities, the Cabinet said.

It said the move will also help ensure the wages of teachers at all compulsory-education schools can be paid on time and in full.

The central government introduced the special transfer payment mechanism in May to cushion local governments from the blow to their tax revenues caused by economic contraction in the first quarter of the year.

China increased its deficit by 1 trillion yuan ($149.5 billion) and issued 1 trillion yuan in special COVID-19 response bonds as part of a more proactive fiscal policy, with the Cabinet setting up a special transfer payment mechanism to funnel the 2 trillion yuan directly to prefecture and county governments.

Premier Li Keqiang said at the meeting that the directly funneled fiscal funds have been used to cut taxes and fees for businesses and help shore up the confidence of market players.

"More confidence requires more actions than words," he said. "We must create more tangible benefits for struggling businesses and individuals."

The central government had delivered 1.57 trillion yuan of fiscal funds to primary-level authorities by the end of last month. Over 2 trillion yuan in tax and fee cuts were rolled out in the first three quarters of the year, according to the Cabinet.

With their fiscal resources replenished, local governments have been in a better position to deliver tax and fee cuts, secure jobs, protect market entities and people's livelihoods, support major projects and poverty reduction, and perform their functions, the Cabinet said.

The meeting held on Oct 21 called for better management of the directly funneled funds, with measures to ensure funding can be allocated as early as possible.

It added that government departments nationwide must enable the distribution of funds in ways that are better calibrated, better regulated and more effective.

It stressed that data transparency and sharing among government departments must be enhanced, and more rigorous monitoring must be enforced over the whole process of directly funneling funds.

"Auditing and monitoring must be stepped up to ensure that the funds are channeled to the most needed areas and are put into effective use," Premier Li said. "No muddying the waters or fishing for profit is allowed."

Li Jinghui, head of the Ministry of Finance's department of budget management, told a news conference in August that the directly funneled funds have served purposes including supporting a normalized epidemic containment campaign, facilitating the survival of businesses, helping more individuals find jobs and enabling grassroots governments to make ends meet.

The special COVID-19 response bond has also covered expenditure in the development of major programs to shore up the public health system, including the containment and medical treatment system for coping with major epidemics, and a system for the supply of medical resources in emergencies, he said.

Some economists have highlighted the need for a more expansionary fiscal policy to shore up economic growth this year, even as China's GDP growth turned positive in the first three quarters, hitting 0.7 percent year-on-year.

Yu Yongding, research fellow of the Institute of World Economics and Politics at the Chinese Academy of Social Sciences, said the central government should continue to increase fiscal expenditure and expand deficits to scale up support to local authorities and boost fiscal investment.

"There is still room for more fiscal investment to be made given the strong demand for public services, especially in urban transport, rail transit, education and healthcare," he said.