Proactive fiscal policy to lift growth

China will adopt a more proactive fiscal policy by expanding central government budget deficit and increasing fund transfers to local governments to boost investment and maintain stable economic growth, according to the 2020 Government Work Report.

The central government has planned a fiscal budget deficit of about 3.76 trillion yuan ($530 billion) this year, an increase of 1 trillion yuan from last year. The deficit-to-GDP ratio is projected at more than 3.6 percent, compared with 2.8 percent last year.

 In addition, China will issue 1 trillion yuan of special central government bonds to mitigate the COVID-19 epidemic effect.

The proceeds of the special treasury notes and the increased fiscal deficit will all be transferred to local governments, Premier Li Keqiang said on May 22 while delivering the Government Work Report during the opening of the third session of the 13^th National People's Congress, the country's top legislature.

The central government will also increase funds transferred to local governments by 12.8 percent to support infrastructure investment and counter economic fallout, Finance Minister Liu Kun told reporters after the opening of the NPC session on May 22.

It will be the highest growth rate till date in the transfer of payments to local governments and is aimed at safeguarding employment and people's livelihoods, as fiscal income is projected to decrease this year due to the COVID-19 epidemic, said Liu.

Meanwhile, the government has also raised the quota for local government special bonds to 3.75 trillion yuan to boost investment and shore up economic growth.

 China's fiscal stimulus package could reach a total of 8.5 trillion yuan if the expanded central government budget deficit, the issuance of the special treasury notes and the local government special bonds are included, said Luo Zhiheng, former chief macroeconomic researcher at the Evergrande Research Institute.