China pledges greater fiscal support in H2

China will accelerate fiscal spending and roll out fresh measures to strengthen fiscal-financial coordination in the second half of the year — moves that are expected to help shore up domestic demand, stabilize investment and put the broader economy on a firmer footing, officials and experts said.

The planned upgrade in fiscal support follows a mixed performance in July, with new growth drivers maintaining strong momentum even as key consumption and investment indicators came under pressure — a weakness experts attributed in part to slower fiscal spending.

With ample maneuvering room, faster bond issuances and quick rollout of new policy-based financial instruments, experts said a more expansionary fiscal stance in the second half should keep the economy on track to meet its full-year growth target of 4.5 to 5 percent.

"We will speed up fiscal spending at an appropriate pace in the second half and improve the efficiency of funds use," Liao Min, vice-minister of finance, said at a news conference on Friday. The pledge came as China's general public budget expenditure reached 16.29 trillion yuan ($2.4 trillion) in the first seven months, up 1.3 percent year-on-year, according to data from the Ministry of Finance. General public budget revenue increased 5.8 percent to 14.37 trillion yuan during the same period.

Boosting domestic demand will remain a key focus. By the end of July, local governments had issued 2.4 trillion yuan in new special-purpose bonds, Liao said, with more than 2 trillion yuan worth of such bonds and ultra-long-term special treasury bonds to be issued in the second half.

Song Yu, chief China economist at UBS Securities, said that as fiscal spending and bond issuance gather pace, government consumption should recover from its second-quarter slowdown and government investment is also likely to pick up.

Vice-Minister Liao said China has also refined a six-policy fiscal-financial coordination package backed by 100 billion yuan in central government funding, with the latest changes taking effect on Aug 1. Introduced earlier this year, the package combines loan interest subsidies, financing guarantees and risk compensation to better leverage public funds, spur consumption and drive private investment. Under the package, newly issued working capital loans for micro, small and medium-sized private enterprises and all new credit card installment transactions are eligible for interest subsidies.

The number of participating financial institutions in the two business loan subsidy programs increased to about 400 from about 100, while maximum subsidized loan amounts for businesses and subsidy caps for consumers were also raised.

"The measures send a clear signal that policymakers are seeking to shore up confidence among private investors, encourage investment by micro, small and medium-sized enterprises and boost household consumption," said Shi Yinghua, director of the Chinese Academy of Fiscal Sciences' Research Center for Macroeconomics.

Li Xuhong, vice-president and professor at the Beijing National Accounting Institute, said the broader subsidy coverage could magnify the impact of a relatively modest fiscal outlay by leveraging more bank lending, helping to spur consumer spending.

In the seven months since its rollout, the package has benefited residents on about 113 million occasions and supported around 6.22 million enterprises, the ministry said.

Further measures are in the pipeline. "We are working on additional fiscal-financial coordination measures, which will be rolled out in the second half," Vice-Minister Liao said.

Su Jian, director of Peking University's National Center for Economic Research, said the next step should be "to shift from subsidizing interest payments to bolstering household incomes". Direct transfers to households in categories such as childcare, pensions and medical insurance would provide a more fundamental boost for consumption, he said.

China is also pressing ahead with its consumer goods trade-in program, allocating 187.5 billion yuan so far this year and helping generate about 1.32 trillion yuan in related sales. Luo Zhiheng, chief economist and head of the research institute at Yuekai Securities, suggested further refining the program, while broadening similar policies to cover services.